The Dow Jones Industrial Average pierced the 14,000 level on February 1 for the first time since October 2007 and has been trending upward since. With the U.S. stock market making strong advances this year, it appears that many investors are becoming comfortable getting back in the stock market.
But that is only part of the story.
While investments in the stock market continue to rise, bond funds also continue to bring in new money. According to Business Week, “Investors deposited a net $9.12 billion into long-term mutual funds of all types,” during the week ending March 27. In spite of the fact that interest rates are at historic lows, causing a concern that the long-term interest-rate risk for bonds is high, many investors continue to make significant deposits into bonds.
The recent stock and bond deposits may be another example of the well-known but little-loved investment technique: buy high and sell low. Once an investment performs well and therefore appears favorable, many investors make their investment. This is also one of the reasons why numerous studies show that the typical investor underperforms the market over extended periods of time. Too many times, they invest after much of the increase has come. Why is it we like to buy everything else in life on sale, but when it comes to investments, we only like them after they are selling at a premium?
Is there an alternative? We believe there is. Instead of chasing returns, invest in a globally diversified, risk-appropriate portfolio of stocks and bonds. Then employ a proactive rebalancing strategy. This will enable you to avoid the dangers of well-intended but ill-timed market timing and help you obtain a successful long-term investment experience.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.