To be honest, it really doesn’t mean a lot. Investors make a big deal out of these purely psychological levels.
However, many investors start to get spooked because markets are at recent highs and they reminisce of bygone investing mistakes. A market high does not indicate a looming correction, nor a market that will continue to go higher.
So therein lies the confusion as to what investors should do. Now that we are back at these historically high levels. Here are some tips for investing at a market high.
1. Dollar-cost average. Whether you have a lump sum to invest or you are adding to your 401(k) at work, this is your first strategy to use at a market high. Dollar-cost averaging is a technique where equal amounts are invested over a set period of time. (example $1,000 for 10 months) By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.
2. Ignore the herd. It’s human nature to join the crowd to not get left behind. When it comes to investing, follow your plan. Do what you need to do for your future and avoid the “hot tips”. This might just keep you from going over the cliff with the rest of the Wildebeest!
3. Be patient. Don’t be in a hurry to “get in on the hot investment”. Investing opportunities are like buses, if you missed the first another will be along in a few minutes.
4. Don’t procrastinate either. On the flip side of patience, is procrastination. Don’t wait for the perfect time to invest. There isn’t one. If you’re afraid, just pass. If you are just nervous, but want to invest, then invest using dollar-cost average. You may want to do this early to catch the best prices before the rally gets going.
5. Diversify globally. Most American investors put the majority of their money domestic markets. That’s dumb. America only accounts for about one fifth of the world’s economy. By spreading it out among other markets, you’ll potentially catch the next market rally somewhere else in the world. This could be a much better idea if you procrastinated and didn’t enter the bull market early enough.
6. Nobody can predict the weather…or the direction of the market. How many times have economists told you the wrong thing? Your local weather person is more accurate than these guys. Many of them missed the recession, plenty of them still don’t believe we are in a bull market. Just watch CNBC for an hour and you will catch every opinion known to the civilized world. Ignore the predictions and stick to your overall plan.
7. Keep it simple. You don’t have to have an overly complex portfolio. You certainly don’t have to have a complex set of buy and sell signals, with chart patterns and full moon observations. Keep the portfolio simple. Stick with investments that you can explain to anyone. You’ll be better off in the long run.
Investing is confusing in any market environment. It gets even more tricky when we reach highs on the various indices. Are you concerned about your portfolio now that the Dow has hit 14,000? If so, email me at email@example.com, or call me for a free second opinion at (859) 225-2596.
Investing regular amounts steadily over time (dollar-cost averaging) may lower your average per-share cost. Periodic investment programs cannot guarantee profit or protect against loss in a declining market. Dollar-cost averaging is a long-term strategy invlolving continuous investing, regardless of fluctuating price levels, and, as a result, you should consider your financial ability to continue to invest during periods of fluctuating price levels