I’m waiting for the market to correct; then I’ll invest.
When I’m in a social setting and individuals hear I’m an investment advisor, they often share their outlook for investing. I hear they’re waiting for the [stock] market to reverse, and then, they are going to ‘get in.’
They’re right that the market does reverse itself, or decline, from time to time. The market always pulls back, and there are plenty of reasons and events that make that happen. I think of this type of investment planning as similar to a Native American rain dance. It will always eventually rain, so if the Native Americans dance long enough, they believe their dance worked. If you wait long enough, the market eventually pulls back, but was waiting a wise decision?
I’ve learned from 25 years of professional experience in the investment business and from devouring the latest research on investment strategy that waiting for a pullback before investing in the market is generally a bad choice, because you miss many of the rallies.
Let’s assume you do choose to wait for a pullback. In the last few weeks, we have had a decline in the Standard & Poor’s (S&P) 500 Index of about 5 percent. Now let me ask you, is the pullback over? Is now the time to get in, or is it better to wait and see if the market declines another 5 percent? Is it better to wait for more? No one, including myself or any of my peers, knows the extent of a market reversal until it has completed. Long-term investors ignore pullbacks. They don’t worry about getting in early or getting in late.
If you’re not invested in the market now, then consider dollar-cost averaging. This eliminates the need to time the market, which is too difficult to do successfully. Effective diversification also helps, because if you invest in a variety of asset classes, and there is a pullback in one asset class, the others should provide some protection.
Disclaimer: The views expressed in this article are the opinions of the author and should not be interpreted as individualized investment advice. Investment objectives, risk tolerances and the financial situation of individual investors may vary. Please consult your financial and tax advisers before investing.