Be Sure to See Bottom Before Jumping Back In
Sunday, February 10, 2008
NEW YORK -- Lloyd Philip doesn't trust this market and isn't making any long-term bets because he sees Wall Street's list of worries as simply too long.
Philip, 33, plans to jump in for the long haul when the Standard & Poor's 500-stock index, the benchmark used by most professionals, has fallen 20 percent to 30 percent from its October highs. But while stocks remain volatile and have recently shown tentative signs of searching for a bottom, the question for those who fled the market becomes: When do I get back in?
"Why should anyone be in a hurry to go out and buy their favorite stock when you know you can still collect money in your money-market account and then just step in and buy?" Philip said, referring to the point when market begin to maintain advances.
"There are too many negative factors in the economy right now," said Philip, who lives in Philadelphia. "The reality is, no one knows whether this is the bottom or not."
That's just the point, some observers said. Finding a bottom often isn't an easy process for Wall Street. Already in February there have been big gains and sizable pullbacks, making the situation confusing -- when the market is rising, is it a pause before the next plunge? If it's falling, is it the normal backing and filling found in a market recovery?
Investors who grew nervous about the stock market's slide in recent months and called in a sell order might have regretted it after a strong advance at the start of the month. But a pullback or two later, those investors might have been feeling wise again. But ultimately, they have to get back in sometime, or they can risk missing out on short-term and long-term gains.
"Someone will tell you they got out at a great time but you've got to check back with those people to see whether they got back in at the right time," said Manny Weintraub, president of Integre Advisors in New York.
Weintraub said investors who exited the market should consider a few things before moving back in. First, to dodge a tax hit, they should avoid buying the same investment they just sold at a loss within 30 days. Otherwise, they need to consider whether they had too much invested in stocks, he said.
"Anyone who sold at this point I don't think is unhappy they sold," he said. "They're only going to be unhappy later when they don't have enough money to meet their goals," he said.
Weintraub said investors who might have taken money out of the market quickly shouldn't wait too long to put it back.
"I think getting in slowly is a good way to start investing but once you've had money that was already equity money for several years, I'd be more aggressive," he said. Weintraub suggests putting half in at one time and half in periodically over a month or so.
Other advisers suggest investors ease back into markets with contributions at regular intervals; the most convenient way is to have them deducted from a paycheck or bank account. This lets investors sidestep the fear and greed that can color investment decisions made hastily.
J. Bryant Evans, a portfolio manager at Cozad Asset Management in Champaign, Ill., has had to guide investors who pulled out of the market and are now asking when they should go from here.
"I just think that if I've got a pile of money I want to start putting in equal amounts in large sums."
He said someone with $100,000 under a mattress should consider investing $20,000 at a time over five months so he can set aside emotion and also not waste time. "When the turnaround comes it tends to come very quickly," he said.
Of course, injecting money gradually doesn't cancel out the risk of losing money but Evans still thinks long-term investors should keep dutifully adding to retirement accounts, such as a 401(k) plan, and try to look past the short-term gyrations.
Philip, however, finds the market too unsettling and not worth the risk.
"I think the current point in the market is where people aren't sure whether to jump back on the bullish bandwagon or become a bear," he said.