Time to invest

The NY Times shows in pictures how much better Democrats are for the stock market than Republicans. If you invested $10,000 in the S&P 500 index during only Republican Presidents, your money would have grown to $11,733. If you ignore Herbert Hoover’s Presidency during the Great Depression, you’d have $51,211. If you had invested $10,000 during Democratic Presidents only, you’d have $300,671!

Burton Malkiel, author of the famous book A Random Walk Down Wall Street first published 35 years ago (which proves that nobody can pick winning stocks and that mutual funds are inferior to index funds), wrote an op-ed in the WSJ yesterday reminding us why it’s a bad idea to take your money out of the stock market now:

It is very tempting to try to time the market. We all have 20/20 hindsight. It is clear that selling stocks a year ago would have been an excellent strategy. But neither individuals nor investment professionals can consistently time the market.

So what should investors do? By all means, young 401(k) investors, and those in their prime earnings years, who are stashing away funds from every monthly paycheck, should stay the course. If you decide to eschew equities during periods of ubiquitous pessimism, you will lose all of the advantage of “dollar cost” averaging (buying more shares when prices are low than when they are high). Asset allocations should be shifted to safer securities over time as the investor ages, but only gradually and on a set schedule as through a “target maturity fund.”

If you are now approaching retirement and failed to move to a more conservative asset allocation, you should not do so now in response to a time of panic. If anything, well diversified investors should, at the end of each year, consider rebalancing to ensure that your portfolio composition remains consistent with the risk level appropriate for your financial circumstances and tolerance for risk. But this is likely to mean shifting into equities and not out of them.

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