I’ve been getting this question a lot this summer: “Should I invest in the market now, or is this the top of the market?”
Here’s my response:
If you watch the news, there’s always a reason not to invest. Think back to the election and the fiscal cliff. Who would be crazy enough to invest at the end of 2012 when the fiscal cliff was right in front of us? Then again, The market has gone up and up this whole year with only a few speed bumps.
If you run the numbers, the research suggests that you’re better off moving the money into the markets despite what you hear from the media. Don’t try to time when to buy or sell. But that may be too hard to stomach for many investors.
And then there is the middle ground – invest in the markets on a regular basis over a certain period of time – called dollar cost averaging. Instead of investing 100% of your portfolio right away, you could invest 25% of it for four months. That may reduce the risk of buying a security only to see it drop shortly after you purchase it. This allows you to ease back into the markets, instead of jumping in. Keep in mind, this method does not ensure a profit and does not protect against loss in a declining market, so investors should consider their willingness to continue purchases during a declining or fluctuating market.