Monday, June 1, 2009

Is it Time to Get Back in the Market? (S&P 500)

After seeing the market go through a strong rally since early March 2009, and seeing today's action in the U.S. Markets, with the S&P 500 going up 2.58% to the $SPX Index level of 942.87, many people are asking whether it is time to get back in the stock market.

That question requires more details. What are you going to do with money? If the money is in a retirement account (the one with tax benefits), and you do not need the money for a decade or more, allocate your assets appropriately to reach that long term goal. This may include a large percentage in the stock asset class.

If the money is in a discretionary account, then there are even more options.

When do you need the money by? If you need the money in the short term (five years or less), you should consider putting the money in safer investments like money market accounts, or high yield online savings accounts.

Other considerations you may want to take are looking at your overall debt and pay off any bad debt such as high credit card balances. Paying off a credit card balance with 15% interest, means a 15% guaranteed risk free rate of return. This is a very good deal.

You may also want to consider other asset classes such as using that money for a down payment on housing, or starting a business.

A six month emergency fund in very low risk investments (such as high yield online savings accounts) is also a must, and adequate health insurance is a must.

After looking through all the above, and deciding that you do have long term discretionary money you can use to invest, then invest appropriately. You do not need to have an all-in, or all-out mentality. You can get in the market gradually,(20% now, 30% in a few months, 40% a year from now, 10% in cash), or increase cash positions gradually (if you are fully invested).

You would have saved around 32% in the S&P 500 if you had followed the following advice:

On February 26, 2008, this blog wrote and asked if you had too much risk in your Discretionary Portfolio. The S&P 500 at that time was around 1384. At the low, the S&P 500 reached 666, for a loss of 51.8%. Many people could have panicked at that time.

Even after the recent strong rally, the current S&P 500 is at 942, for a loss of around 32%.

Today's S&P 500 Stock Chart