After a heady rally off its March lows, the stock market has hit some upside resistance, and each trading day brings new uncertainty. If you want to get back into this market, what’s the best way to do it?
After a heady rally off its March lows, the stock market has hit some upside resistance, and each trading day brings new uncertainty. Wall Street gurus aren’t much help, calling the rally everything from a bear-market blip to the start of a new bull run. The average investor with some cash to put into stocks has a right to be confused. If you want to get back into this market, what’s the best way to do it?
Many market mavens are suggesting that investors go back to an investment strategy that’s been around for decades: dollar-cost averaging; this involves putting relatively small amounts of cash into stocks or a mutual fund on a regular basis. Whether the market goes up or down, a set amount goes into the market every month, or quarter, or whatever period you choose. Essentially, dollar-cost averaging tunes out the market “noise” and ignores market volatility, taking the emotional factor out of investing. The advantage behind the strategy is that your money buys more shares when prices are low, giving your portfolio a bigger boost when the market recovers.
If you choose a dollar-cost averaging program, you can put it on autopilot. Many of the big fund companies, like Vanguard and Fidelity, will set up a system that takes a fixed amount out of your checking account each month automatically. There is one caveat: Dollar-cost averaging works best if you’re investing directly in no-load funds. If you use a broker to buy and sell stocks or funds, you’ll pay a commission on each periodic investment.