AboutJay Kay Expertise As a private investor for the past 40 years, I have experienced both bull and bear markets, and have lived to tell the tale. I should be able to provide you with serious, practical insights into managing stocks, bonds and mutual funds in your portfolio, along with useful information concerning most aspects of personal finance. No specific stock/bond recommendations furnished.
Expert: Jay Kay Date: 3/25/2004 Subject: buy stock now?
Question I keep reading that this is not a good time to get into stock, but these statements never seem to be in a particular context, whereas I myself happen to live in a particular context. Namely, I have 15K that I plan to move from cash to stock (5 to a broad-based US index, and 10 to an international fund of some kind). This would represent a modest increase in my total holdings of stock. I will not need this money for at least ten years.
Given this situation, I'd like to get opinions as to whether I should invest now, or wait. If the latter, what exactly would be the signal that would tell me that the time to buy stock had arrived? If the former, should I put it all in now, or dollar cost average it in over some time period?
Thanks, David
Answer David, if you could time the market accurately, you would be unique, and investors would beseige you for your advice. Of course, you can't, and that's why you're asking - but neither can anyone else. Knowing where the market will be tomorrow is beyond anyone's ken; knowing where it will be at any point during the next ten years is an even greater impossibility. One of Wall Street's legendary "wise men," when asked what the market would do, responded: "It will fluctuate."
At this point in time, the overall market is fully valued from an historical perspective, and interest rates (which you doubtless know are a major factor in determining market movements) are at historic lows. Many "wise men" have forecasted that the stock market will probably return no more than 8%-9% annually over the near and intermediate term. Each arrived at this conclusion through the means that he favors. Such estimates do not (cannot) take into account the unforeseen - economically, politically, etc. So no one can really know, since the unforeseen happens all the time. Such an event, by the way, would be one of the "signals" you would hope to identify, but as you can see, it is by definition beyond identification before it happens.
You have the luxury of a ten-year holding period. It is not vital that you decide whether to commit your money today, or next month, or to wait a year. Naturally it would be marvelous to invest at a level which proves to be the low point of the next ten years, but anyone who happens to do so has benefited from extraordinary luck. If I were in your position I would dollar cost average over the next year for US stocks, and over the next two years for international stocks. I would make a decision based on my own assessment of the mega-trend of the US economy, and likewise the world economy. Do I know more than the "wise men" - let alone the "experts" on the Internet? Probably not, but it's my money, and if I don't know where or when to invest it, I would remind myself that perhaps I shouldn't be investing it in stocks at all. On the other hand, if I had my money in cash, as you do, earning zilch, as you do, I too would be looking for something better (while reminding myself that zilch is better than a loss).
There are other alternatives as well. I am not advocating any of them - just pointing out that they exist, in the event you don't like the climate for stocks.
Have I been the least bit helpful? I meant well. If I merely confused you more, I sincerely apologize.
