Many investors are struggling with what to do with their cash reserves…worrying they might be missing out on a market rally, but afraid to jump in for fear they will end up catching a downturn. The challenge is that waiting for the perfect time to invest can often lead you to miss significant market returns. In the long run, investors may be better off, both financially and emotionally, entering the market in a systematic way that takes emotion out of the equation.
Since the stock market’s 2007 peak and subsequent volatility during the last five years, fearful investors increased their cash positions and have been slow to reinvest. They’ve patiently waited for the market to pull back a bit, or maybe even to cross some imagined threshold. Considering that 2013 marked the best January for the S&P 500 since 1997 and for the DOW since 1994, many investors are now left feeling they’ve missed their chance.
Accurately timing the market can be nearly impossible, even for the most seasoned financial experts with access to the best economic forecasts and market analysis. Instead of worrying about perfect timing, following a disciplined approach to reentering the market removes the emotion and puts the cash back towards your investment goals.
Using a systematic approach to get back into the market gives investors an easy, comfortable way to accumulate assets long‐term. It also helps manage your emotions. This is because if you put your money back in on a schedule, you will feel good, both if the market goes up (I got some money in!) and also if the market experiences a near-term pull back (I kept some powder dry!).
This approach, a version of dollar cost averaging, works as part of your overall investment plan where you use a constant amount of money to make contributions at regular intervals. You can customize a plan that suits your needs, from a more aggressive plan (like 50 percent now, and 25 percent 30 days then 60 days later) to a less aggressive one (50 percent now, 10 percent per month for five months). These methods let you take action towards growing your investments in a way that minimizes the potential impact of short‐term volatility in the market.
Waiting for the right time builds anxiety and can also limit the growth potential for your investments. Talk with your investment advisor today to determine what approach you can take to put your cash reserves to work. The sooner you begin, the sooner your sideline cash can be working towards your investment plan goals.