Should I buy stocks now?

Is that a loaded question or what?  If you mention to someone that you are thinking about investing in the market they may just start fitting you for a straight jacket.  However investing in stocks right now may not be as crazy as it sounds.  I know most folks have taken a beating on their 401-K plans during the last 12 months but let’s look at some history and try to get away from the hysteria.

October 9, 2007 saw the Dow Jones Industrial Average (the Dow as most of us call it) hit an all time high of 14,165.  Since then it has lost over 5,680 points (through the close of 12/29/08).  That is a 40% drop over the last 14 ½ months.  It was also announced earlier this month that the country did actually enter into a recession in December of 2007.

When we look back on the historical performance of the stock market in relation to the economy in general we notice several trends (there is never a guarantee history will repeat itself) which may indicate that the Dow has “hit the bottom”.  The first trend is that the stock market usually goes from a bull (raising) market to a bear (dropping) market prior to the country going into recession.  The second is that the market turns before the recession ends (we are already 13 months into the recession and the longest post war recession was 18 months) and there are many economists that are predicting economic growth to return during the second half of 2009.  The third (which is critical to recovering large losses) is that the Dow historically rises between 40% and 50% in the first year of a bull market with most of the gain in the beginning of the run up.  

Are we in a bull market?  That is hard to say, however the Dow hit its lowest level of 2008 on November 20th when it closed at 7,552.  Since then it has not been below 8,000 points and closed at 8,484 on December 29th.  If we have hit the bottom and history does repeat itself, we should be looking at the Dow closing 2009 above 11,000 points.

Should you be in the market now or not?  The answer really depends on your individual investment strategies and whether or not you can tolerate some market swings.  One key component to any sound investment plan is to make sure you are comfortable with it and can stick it out.  You must adjust your strategies as your risk tolerances change.  Investing in anything should be undertaken with the same mindset you would go to the casino with-invest only money you can afford to loose or keep tied up for an extended time.  Successful investing requires a steady, consistent approach along with patience.

Trying to “time” the market swings is almost impossible for most of us.  If you wait for “more evidence” that the market has swung from bear to bull you risk losing out on some significant gains.   The time may be right to for you invest but do so with a well thought through plan.  If you do embark on an investment plan, do so with patience and plan for the long term remembering that;

It’s Only Money

John