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There are a lot of mixed feelings in the market today. We are hitting all-time market highs, but at the same time the feeling on the street seems to be that the job market still is not good. Even though the unemployment numbers have come down in the U.S., millions have left the workforce.
With this situation, many of my clients ask that if things are so bad, why is the stock market doing so well? Surely, then, the next question is when will the stock market take a dive again?
If unemployment has dropped, why are so many people not working or underemployed? Many have actually dropped off the unemployment statistic, which many view as a false sense of reality regarding unemployment.
For the most part, those who are reading this newspaper can find a job. It may not be exactly what you want, but there is work out there. It is troubling that 1 in 5 (50 million) American families is on food stamps.
Many companies also have cash but are so concerned about unknown costs, especially the upcoming changes to health care. For a while, many companies were buying up their stock but have stopped because their own stocks are now higher. I would bet that when the market takes a dive, which is the obvious next step, they will again buy back their stock at a reduced value.
Many companies seem to have billions in cash profits off shore and will not spend it back in the U.S. at the 35 percent tax rate. A solid tax forgiveness to companies with high cash abroad would bring a massive boost to a U.S. economy.
There is nothing wrong with taking advantage of huge market gains, just as there is nothing wrong with taking advantage of huge market loses. The question is whether you have a plan or have time to monitor your investments on a daily basis.
Most people don’t have that time. Either they are traveling and don’t have access to their investments or they just are too busy to keep on top of them like they should. Whichever the case, maybe you should look at the time in the market and not try to time the market.
I have explained the concept of dollar-cost averaging (DCA). If you are visual like I am, it is much easier to understand the concept if you look at graphs.
In short, if you buy a mutual fund on a weekly or monthly basis, you will hit high points just as you will hit low points (prices). Look at your statement after six months or so once you have begun buying stocks or investing in a mutual fund regularly. I know it is a hard concept to feel comfortable with but when your statement value is down and you have extra cash, purchase more shares at a discount.
As I mentioned, after six months you will have six individual purchases on your statement. Let’s say stock in your first month were purchased at $15, then at $15.75, then at $16.50, then at $17.20. Going up every month.
Now what do you do when you see the market drop and your next purchase was $15.10 and your total account value dropped? Your total account value was down but you know you have a good fund. Don’t go to your favorite pub and drink your sorrows away, drop that extra $100 into that fund as you will buy more shares at that $15.10 discount price. When the share value gets back to that $17.20 your total account value will look pretty nice.
The more you watch your monthly automatic purchases the more you will understand the concept of DCA and when to put extra money in.
I have had clients who started their DCA years ago and just put it on autopilot. After going through one of our worst economic times, they did not miss a monthly investment. Those clients did very well through that bad time. The only regret they seem to have is that they did not put more money in when the value was down. They weren’t paying attention that closely.
I tell all my clients up front that they need to be involved in their investments. I am available at any time if they have questions or concerns. I reach out on their birthday to see how they are doing and if they have questions. When there is something going on with their investments that warrants their attention I contact them.
I have found that this approach is a win-win. Be involved with your investments and ask questions. Don’t leave it up to someone else to make all your decisions. It’s your money. Just make sure you review it at your comfort level.
Information in this column is not intended to be specific advice for anyone. You should use the information to help you work with a professional regarding your specific financial goals.
Capt. Mark A. Cline is a chartered senior financial planner. Contact him at +1 954-764-2929 or through www.clinefinancial.net. Comments on this column are welcome at firstname.lastname@example.org.