Is it a good time to get back into the stock market/mutual funds?

[dragonfly99]

Hi all. I just wanted to get some opinions from you former finance/investment types, or just the financially savvy folks, about whether you think that now would be a good time to get back into mutual funds and/or the stock market. I'm actually not planning to buy individual stocks, because I honestly don't have the time to research them and don't have the inclination either, being a busy clinical fellow. I recently started fellowship at a hospital that doesn't have ANY matching but does offer a variety of retirement investment options (Fidelity mutal funds, etc.). I'm realizing that I really won't make any money by sticking extra cash in savings accounts or even CD's right now, because they are getting ridiculously low interest rates. If the hospital was giving me matching funds, then this would be a no brainer. However, considering how crappy the overall economy and stock market has been for the past year or two, I'm honestly still a little nervous.

p.s. Yes, I have heard of dollar cost averaging, but I guess I'm not totally buying into that at this point...if you look at how long it's going to take my current retirement accounts/investments to recover from the 50% they lost in the past 1.5 years, it's going to take a ridiculous amount of time to do that. I'm not sure we can expect the stock market in the next 20 years to perform the way it did the past 50 years or so...I know that John McCain said the fundamentals of our economy are sound, but a good bit of me is afraid that isn't so.

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[southerndoc]

Unfortunately you've already missed the boat for large gains. You should've purchased in March for that.

Who knows if we'll go into a "W" shaped recession, but we are definitely coming out of our current one from most indicators.

It is always a good time to invest in the stock market IMHO.

 

[Sol Rosenberg]

p.s. Yes, I have heard of dollar cost averaging, but I guess I'm not totally buying into that at this point...if you look at how long it's going to take my current retirement accounts/investments to recover from the 50% they lost in the past 1.5 years, it's going to take a ridiculous amount of time to do that. I'm not sure we can expect the stock market in the next 20 years to perform the way it did the past 50 years or so...I know that John McCain said the fundamentals of our economy are sound, but a good bit of me is afraid that isn't so.

Dollar cost averaging isn't working for you, because you either:

1. Don't really understand it.
2. Blew it.

The idea of dollar cost averaging is to regularly (the more frequent the better) put money into an investment, so that the dips and spikes all average out.

If you had dollar cost averaged, you would have already made back a decent amount of that 50% you lost.

It's like getting dealt an 11 in Blackjack. You need to double down, which means paying more to make more. If you think I'm wrong, your only legit reason for thinking so is because you don't think you will earn money in the market in the long run, and if you think that, then why are you putting your money in the market?

To answer your question, however, no one can predict what the market will do. This latest uptick may be a recovery (or the result of a recovery, as the Fed, White House, etc would like you to believe) or it could be a dead cat bounce (as all of the Austrian School guys are saying.....)

 

[edmadison]

I totally agree with Sol. If you aren't dollar cost averaging you are taking a huge risk. Basically you are trying to time the market. There's plenty of research out there that shows that non-professionals typically buy high and sell low. When you DCA, you smooth all that out. If you are really in this for the long haul, you can't look at the market from month to month. You have to look over multi-year trends, which are up up up over the long term, even including recessions.

Also, If you are getting no match and you are below the income threshold, your first 5K of retirement money should go into a Roth IRA.

Ed

 

[dragonfly99]

I pretty much knew what you guys would say.
I would say that no, I didn't "blow it" because I didn't jerk my money out of the stock market when it was down. I also didn't stop the automatic deductions that were going into my IRA every month...so in that sense I was still "dollar cost averaging". I would argue that I have not being trying to "time the market" since as I said I don't buy individual stocks. The only thing I did was quit putting extra money into the mutual funds offered @work, since I was no longer getting the matching funds and it was pretty obvious the market was having a crappy couple of years, and honestly as a research fellow I didn't really have much extra money to invest. I suppose in theory it's good to put in more money when the market is down, but with as far down as it went I'm thinking it's going to be 7-8 years at least before people who put money in within the past few years will get that money back (even to the level where they started).

I suppose I should have clarified my question a bit better. I was curious whether people felt the stock market is likely to recover in the next couple of years...I realize that it's sort of an academic question and that nobody can truly predict this, but i was just curious as to what people think is going to happen. If you believe the US stock market will follow the trends of the past,then yes, it will go back up. However, sometimes I'm not sure that we (the US) have what it takes any more economically. If we do not, relative to some of the emerging economies like India and China, then over the next 20 years or so, US stocks may not end up being the good investment they have historically been.

 

[UserNameNeeded]

If you're not getting a match, you should instead be funding an (Roth - if you qualify) IRA. Plus, with IRAs you can choose your investments from the wide world of equities (and everything else), and not be limited by the (usually poor or average) choices in 401k/403b plans.

 

[dragonfly99]

Yeah I think I'm going to just go for a Roth and ignore the mutual funds @work...I mean the 403(b) for now. At my residency program we got matching funds, but the fellowship/hospital where I am now doesn't offer that. As far as choosing equities, I don't think I have the time or inclination or skill to do that well. I'm probably better off choosing some Roth that just tracks the S and P 500 or something...

 

[malpractician]

be sure to always check expense ratios on any mutual/index fund. VFINX is an index fund offered by Vanguard, and it tracks the S&P 500. They only charge something like .19% or so of your investment, which is dismally low compared to others out there.

As far as diversification goes, that's about as good as it gets with stocks, plus you can manage it yourself.

 

[dragonfly99]

thanks for the tip, malpractitian.

 

[pennyman]

Investing in penny stocks is also a great option. Penny stocks prove good for first time investors who would like to study the trends of the market and invest a small amount of money when they enter the market

 

[lee9786]

From what I hear invest in gold!

 

[southerndoc]

From what I hear invest in gold!

Bad idea. Past performance is not an indicator of future performance. I smell a gold bubble around the corner.

 

[Bobblehead]

I maxxed out my unmatched 401k accounts each year during training by dollar cost averaging into them every paycheck. I let it all "ride" throughout the market ups and downs of the past few years. For the most part things are in the positive due to prior gains although some of the most recent holdings are still in the red. I am planning on rebalancing my asset allocation through new investments this year but scarily it's telling me to put money to shore up my previously lacking bond allocation.

That is giving me some pause from DCAing into bonds when the only real place bonds have to go is down. So taking the next best alternative I'm shoring up my cash equivalent position in the interim for 2010.

For a busy clinical fellow I'd do what Warren Buffet suggests. And that is to be greedy when others are fearful and fearful when others are greedy. And to hold broad-based index funds as your core portfolio in an asset allocation that will allow you to sleep at night.

There is a role for CDs and savings accounts even in this current near-zero interest environment. While you will take a hit from inflation you still have the vast majority of your career earnings potential to offset this. And your capital will be preserved which is important if you're trying to save a down payment for a house purchase post-training for example or need to shore up your emergency funds, etc.

 

[sam1999]

 

[rama kandra]

If your time horizon is longer than yes, even today is considerably bargain basement prices. One has to look at the longer time frame to justify buying today. Could you wait for a retracement, sure but that may also never happen - people in 2002 were quite burned from the dot com bubble just hitting the bottom, and 9-11, and people were saying the recession was just getting started.

Nobody bought the stock market rise in 2002-2003 and if you had purchased stock anytime in the next 5 years you would have made money. If you held longer, perhaps you could have lost it all in the 2008-2009 bear. I will say that right now is basically what I consider another 2002, we got up quite a big way but I buy individual stocks and issues and hold them. I have yet to sell anything in my portfolio this year and plan on buying more when I smell good prices.

Keep us in touch with your plan.

 

[lee9786]

Bad idea. Past performance is not an indicator of future performance. I smell a gold bubble around the corner.

Yes but the thing about gold is it can't be printed to increase the supply.

 

[kami333]

Yes but the thing about gold is it can't be printed to increase the supply.

They also said that about real estate.

How did the quote go, when your shoe-shiner starts talking about stocks it's time to sell?

 

[rama kandra]

Gold is a commodity and like all of them, finite. Some people have mentioned things about gold which are true about nearly every resource we use. Gold is a traded security, and like all of them, has a value that fluxuates. It can go to values that stun and scare.

 

[roo]

Overall: a 'pretty good' time to purchase stocks. No it is not time to bet the farm on leverage to buy as much as you can, but it is still better than the other options available to park capital right now.

If you want to be hands-off, as mentioned by the colleagues here, the best strategy is an index ETF or low-load mutual fund that tracks the broad market. I agree with the prediction that an index fund tracking something like S&P 500 will outperform a summation of all the other hedge fund choices averaged together (see similar bet at the top of longbets.org). Getting ETF or low load mutual fund pretty much depends on tax considerations (eg dividend payment tax hits and stuff like that).

Choosing an index ETF, etc gives good coverage. Choosing exporting-heavy stocks hedges against US dollar currency falls, which is quite possible in the future to try to pay down US debt. Also has some mild inflationary protection built in too, since as prices of products rise, then the income of the companies who make the products should rise too, hence the stock value.

Interest rates for fixed investments likely will slowly start to rise in the next few years, but aren't going to >10% range anytime soon--too much worries of risk of depression-era repeats. Makes savings account returns averaged over the decade likely to barely keep pace with inflation even before the tax hit on interest income.

Real estate: If you don't have time to pick stocks, probably not time to deal with being a landlord either: watching local byzone laws, managing tenants, repairs etc. A broad index ETF will have exposure to real estate anyway directly and indirectly through construction, commodities and probably some real estate companies in there too.
If die-hard committed to real-estate right now, consider just buying some of the well-managed dividend paying REITs: most of the well-managed oaks in that forest have a lot more breathing room after the credit collapse storm took out all the saplings--now those remaining oaks are picking up the best bits of the carnage of their fallen peers for deep discounts. This is probably the deepest value sector still remaining in my opinion if you are willing to swing for a home run by trading the risk of striking out. If you just want to get on base, stay with the index ETFs.

Gold and precious metals are best considered as insurance. As wealth grows, consider something like 5% exposure to precious metal directly just as you would insure a home or something else--like insurance, consider it to dead capital though if there ends up being no crisis while you hold it. If interest rates rise over 5% in the future, consider instead of just holding gold bars in a safe somewhere, to consider one of the gold banks that seemed to be popular a few years back where they would hold your deposit of bars in their safe and give a small interest rate. These seem to have gone more by the wayside now that the interest rates are so low that it isn't a viable business to have a model of holding a vault of gold and still competing with other lenders when interest rates are so low worldwide.

Hope that helps.
Disclosure: Not an analyst, and certainly not your analyst.