Why it's not too late to buy stocks

There’s nothing more frustrating than sitting on the sidelines as the stock market churns higher.  Should you put some cash to work with the S&P 500 near its all-time high? Or should you wait for a pullback?

More often than not, investors who try to guess the market’s prevailing winds get blown off course: buying when prices are high and selling when they’re low. Stock investors earned 3.5% a year on average from 1992 to 2012, compared to the S&P 500’s annualized return of 7.8%, according to a 2012 study by the consulting firm Dalbar. The main culprit: poor market timing, according to the study.

Of course, it’s hard to tune out the market chatter, which tends to heighten investor anxiety about what to do. Bears argue stocks are fairly valued or on the pricey side: The S&P 500 is now trading at 17.9 times trailing earnings for the last 12 months, about 15% higher than the average trailing P/E of 15.5 since the 1870s.

It’s also important to remember that stocks are a long-term investment. Many people look at the market through a one-to-two-year lens. But that’s too short a time-frame given the volatility of earnings and potential for market setbacks due to a political or economic crisis.

While stocks move higher over the long-term, they can be highly volatile near-term with swings of 20% or more in any given year. One way to lower your risk of buying right before a downturn is to average into stocks over time. By investing gradually, you can lower your average purchase price should the market head lower.

Also, don’t stray from your long-term investment plan. For example, if you’re in your 40s, you may want a mix of 65% stocks, 30% bonds and 5% cash — a classic balanced portfolio. You’ll need to rebalance periodically, making sure your positions don’t deviate too far from your long-term targets. And most advisers recommend less stock exposure and more fixed income for investors closer to retirement or withdrawing cash from their portfolios. The idea is the mix gradually gets more conservative.

Source:  Daren Fonda,  Fidelity Interactive Content Services

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

The Jacksonville Business Journal has ranked D2 Capital Management in 

the top 25 of Certified Financial Planners in Jacksonville

D2 Capital Management is a Member of the Southside Businessmen's Club and the Beaches Business Association