This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

You'll Finish Down If You Wait for Up Market to Invest

NEW YORK ( AdviceIQ) -- One of the most common questions I get: Should I wait until the market goes up before I make another contribution to my investment account?

The answer is no. You should be investing continuously, in fair weather and foul. Ongoing contributions to your 401(k), individual retirement account or other investment vehicle give you the best results over time.

Since April, the market has generally headed up, following a two-month slump. Given the unending turmoil in Europe, slowing growth in China, high unemployment in the U.S. and other troubles, it likely will slip again before too long.

No one, other than the very lucky, can time the market successfully. Trying to invest that way ignores a truth about markets: They go up, and they go down.

In the grand scheme of things -- and some research that bears this out -- investing when you have the money provides a greater return historically than waiting until the market is up. So don't delay.

No matter how many times you hear the thought, the truth of it shines through: Past returns are irrelevant, as they don't guarantee future results. Buying low sounds good, but feels scary, because that's the moment the news is the most worrisome. Indeed, at times panic fills the air.

It feels as if there is less risk when things are going up. But that is when the risk is rising. The value of your most recent investment is more likely to go down after a prolonged uptrend. But investments made over the long term are likely to grow, despite periodic downdrafts. See my blog post here for more on this topic.

History shows that the stock market rises over time. True, for shorter periods, under 10 to 15 years, the trend may be negative. But that tends to even out. As long as the U.S. economy expands, as it has through most of the nation's existence, so does the stock market.

Back to investing when you have the money. Most people don't have the money until they are paid, and thus regular monthly contributions of the same amount (called dollar cost averaging) are common.

Sometimes, people receive inheritances or bonuses. Or they find that savings earmarked for a specific purpose are no longer needed for it. Perhaps it's a reserve fund for a new business that now is doing well. Do you invest it as a lump sum?

You split it into multiple investments if you are nervous or certain the market will go down. But what if markets go up? Then a lump sum is better (because now is the "buy low" time). Do you understand the problem yet? Nobody knows which way the market might go tomorrow, or at any other time in the future. A long-term perspective suggests investing it as a lump sum. The real question you are struggling with here is how to allocate it, not whether you should invest all at once or in increments.

The best frame of mind when making investment contributions is to expect the value to go down sometime, indeed many times, between when you contribute and when you withdraw. Timing contributions or withdrawals based simply on what the market has just done is likely to lead to an overall loss. Investing high and selling low will lose you money, by definition.

You are likely to experience both bull and bear markets many times during your lifetime. Allocate your portfolio so your highs and lows don't swing so wildly, using asset classes that have less volatility relative to others.

--By Larry R Frank Sr., CFP, registered investment adviser in Roseville, Calif., for AdviceIQ . Frank is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning..

Follow Frank on his blog .

AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.

To subscribe to AdviceIQ's Rss feed for personal finance articles written by financial advisors and AdviceIQ editors, click here .

Follow AdviceIQ on Twitter at @adviceiq.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs