The Market Is Up. Should You Get In?

  By Bruce Jentner
Bruce Jentner

The markets extended their exceptional performance in the fourth quarter of 2011 through the first quarter of 2012. The Dow Jones Industrial Average climbed 8.1%. The Standard & Poor’s 500 and the NASDAQ surpassed this return, rising 12% and 19% respectively.  It was the Dow and S&P’s best first quarter since 1998.

The strong performance worldwide was attributed to continued Federal Reserve accommodation, signs of a strengthening economy and some debt restructuring in Europe.

It is certainly more pleasant to receive good news. Yet it is important to remember that short-term results, positive or negative, are just that – short term. How long will this good market news continue?  No one knows.

There appears to be a sense among investors that it is time to return to equities after loading up on bonds or sitting on the sidelines. However, now may not be the right time to get back in. In order to promote a successful investment experience, an investor’s focus must be on the long term.

In my opinion, it makes better sense to continue employing broad global diversification in both stock and bond index funds and asset-class funds. If you are already using this global diversification, my current recommendation is, “Don’t just do something, stand there!”

This is not to be confused with a buy and hold approach. You should perform periodic reviews of your portfolio to look for rebalancing opportunities to capture gains by selling high and purchase what is under-weighted by buying low. And all of this can be accomplished with no attempt to time the markets. There will likely be excellent opportunities to capture stock market gains over the coming months if you were already invested before the recent market rise.

This investment process is designed to provide a successful investment experience over the long term. It is in sharp contrast to the short-term market timers and active managers that attempt to “get in” and “get out” at the “right times.”  The evidence is strong that although this market-timing approach sounds appealing, it typically delivers disappointing results.

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