Perhaps a time to slowly invest in mutual funds

Staying Ahead

September 01, 1997|By Jane Bryant Quinn | Jane Bryant Quinn,Washington Post Writers Group

WHAT SHOULD you do if you think you missed the market?

Maybe you sold stocks three years ago because you thought prices were "too high." Maybe you're cautious about money and feel happier with Treasuries or municipal bonds. Maybe you're just now finding the money to invest.

And there, right under your nose, is your stock-happy neighbor, using his profits in Intel to buy a new BMW. Your friends are talking up stocks at parties and taking fabulous trips abroad.

You're driving a Dodge and worried about how to pay for college in a couple of years. Grrrrr.

Here's what not to do.

Kick yourself around. During these years, your personal goals were defensive. For whatever reason, you couldn't face or couldn't afford to take a loss.

The fact that, in hindsight, you probably wouldn't have had a loss is irrelevant. At the time you decided not to own stocks, there was no way to know.

Had the market gone down instead of up, your friends would now be feeling the sharp bite of regret. You'd be talking up Treasuries.

Blame others. Your husband, wife, mother, boss, dog, accountant and parakeet are none of them to blame. People make decisions based on their best understanding of their personal finances at the time.

Between taking too little risk and taking too much, I'd choose "too little" every time. At least it preserves your capital, which gives you a chance to start again.

Eat your heart out over money you've notionally "lost." Financial planner Mark Spangler of MFS Associates in Seattle says some of his clients are telling him, "If I'd had all my money in Microsoft, I'd have made 79 percent this year."

Similarly, many people not in the market are irrationally angry or bitter about it. They have a "perceived loss," although not a real one.

But playing the "if only" game is an emotional and financial box. Professional money managers miss opportunities every day. You need to address the next opportunity rather than mourn the one that got away.

Besides, it's imprudent to put all your money in Microsoft, as its worshipers will learn someday. IBM was a brilliant stock for years, until the day it suddenly and shockingly wasn't.

Jump into the market full force, in order to make up for what you missed. Spangler says he's hearing from people who want to invest all their money now, because they believe the market is going up, up, up.

Maybe so, maybe not. Before you invest, consider why you stayed out of the market in the first place.

If you're working with money you're going to need within three or four years, your decision was right. That money shouldn't be exposed to stocks. The market might fall and not recover by the time you need the cash.

If you have a lot of debt and small savings, you also shouldn't be invested heavily in stocks. What if the market dropped around the time you lost your job? Stocks are for money you won't have to touch in any plausible emergency.

If you left the market because you were playing at market timing -- trying to catch the price swings up and swings down -- you get no sympathy here. No one's smart enough to time the market with consistency. I hate to say "I told you so" but, well, never mind.

If your job seems secure, however, your debt is low, you're holding retirement money that you won't need for many years and you still haven't been in stocks, you've been overcautious.

Stock markets do, indeed, drop by 50 percent sometimes, or stay flat for a decade. But troubles like this are temporary, as history shows. As long as you're in for the long term, some of your money should be committed to stocks.

To reinvest today, consider diversified mutual funds, an index fund invested in leading U.S. stocks, an international fund, and a fund that buys smaller companies.

Because of the U.S. market's undeniably high valuation, reinvest slowly -- some money each month or each quarter. That might give you a better average price if the market zigzags or drops.

Average returns since World War II are 12.3 percent. If you hold for the long term, that's what you can hope to get.

Pub Date: 9/01/97

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