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Money Girl

118 MG Time To Jump Back in the Market?

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Broadcast on:
08 Apr 2009
Audio Format:
other

Like what you hear? Help us out by writing a review at iTunes. Questions go to money@qdnow.com. Thank you!

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This episode is about whether the time is right to get back in the market for long-term investing. We all agree that 2008 was a rotten year to be invested in stocks for the long-term. Many investors threw up their hands, sold out, and put their money in safer havens until the storm passed. Well, has the storm passed? Should we get ready for sunnier days when we can profit from the markets turnaround? I'm not going to go out on a limb and say that the markets hit bottom yet. It's too early for that. But right now, the Dow Jones Industrial Average is up over 1,400 points from the significant low we saw in early March. I do believe there are optimistic signs that a turnaround point may be near. So, if you've had all your money on the sidelines, this could be the perfect time to get back into stocks of strong companies that have good prospects for the future. Keep in mind that no one really knows where the market will go from here. The catch-22 is that investing for the long-term too early means potential losses if the markets decline further. But investing too late may mean serious missed profit opportunities. Before you do anything, you should know that recovering which you may have lost very quickly is unlikely. The market would have to nearly double just to get back to where we were in October of 2007, but there will be a recovery. And if you missed the upswing, it could take many additional years to rebuild your wealth. The reality is that the only way to profit from the market is to have money in the market at the right time. A wise man once said that if the timing is right and the gods are with you, something special happens. Okay, that was actually a Rick Springfield quote, but I think he was on to something. The best way to get a sense for when the time is right is to keep your eye on the ball. Unless you pay a portfolio manager to invest for you, you should make it a habit to watch the major market indices, like the Dow, NASDAQ and the S&P 500 on a regular basis. Sites like eTrade.com and ScottTrade.com make it easy to see what's going on at a glance. There's no denying that the market is cheap right now. Many great stocks might as well be sporting a neon blinking 50% off-sale sign. Take Google, for example, its high in late 2007 was over $700 per share. It's now selling for just over $350. The same is true for Apple. Its current price of about 100 was over 200 less than 16 months ago. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but policy genius makes the process a breeze. 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LinkedIn, the place to be, to be. Investing in companies with products and services that should maintain their strong demand is a very good idea. Their success will provide you with a share of the gains when the market gets bullish again. There will always be excellent returns for investors who want to spend time sniffing out relatively unknown companies that have the potential to crush the competition or then have exciting innovations on the horizon. But if you don't have the time or inclination to do investment research, a market matching index fund may be your best bet. An index fund is a type of investment such as a mutual fund or exchange traded fund that's designed to match the returns of an index such as the S&P 500 or the Russell 2000. Check out iShares.com as well as Money Girl Episode 104 for more on investing in exchange traded funds. The objective of an index fund is to replicate the general performance of the market in which it invests. That provides broad market exposure at a low cost mainly because fund managers aren't required to actively pick winning stocks. Buying a set amount of index fund shares on a regular schedule allows you to invest without spending a lot of time or effort on your portfolio. Check out vanguard.com for some of the best known index funds you can buy. Perhaps you commit to buying $200 worth of shares each month. If the share price happens to be down, your $200 will buy you more shares than when their price is higher. That method of investing is called dollar cost averaging. It won't always mean your purchases of shares are at the best price, but it will guarantee that you'll have skin in the game when the market rallies. If you still don't get a warm fuzzy feeling about buying back into the stock market, consider what you might want to sell. Periodic market rallies like we experienced in the latter part of March are the perfect time to unload losing investments so you're not selling at rock bottom. If you have some stocks of companies that you don't believe will rebound for the long term, why not put your money to better use? Repositioning your portfolio when there's a more profitable place for your money can be a smart idea, even if it means taking a loss. It just makes sense to upgrade your investments to reduce the risk of further losses. Believe me, in 5 or 10 years, you'll be glad you took advantage of the opportunity to shed the real losers. Before you make any investment, whether it's in Johnson & Johnson stock or in your neighbor's fledgling tree trimming business, be sure you're qualified to invest. What I mean by qualified is the answer to this question. Do you have enough emergency money in savings to live on for a minimum of 6 months? If you answer no, keep saving because having reserve cash is actually an investment in yourself. If you answer yes to having some healthy cash reserves, you're in a position to put some money at risk in investments. Thanks to everyone who supported the show by downloading my newly released audio book, Money Girl's Guide to Retirement Planning. Find it on sale@audible.com and in the iTunes Store. Cha-ching! That's all for now. Courtesy of Money Girl, your guide to a richer life. Get Money Girl and other great shows from quick and dirty tips streamed to your iPhone. Download Stitcher free today at Stitcher.com. [Music] Introducing Wendy's new saucy nugs. The nugs you love covered in your favorite sauces. So no matter what flavor you're craving, Wendy's has you covered. Grab Wendy's new saucy nugs today. Open till midnight or later. At participating U.S. Wendy's, ours may vary by location. Imagine earning a degree that prepares you with real skills for the real world. 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