Main Street investors who've been
waiting for stock prices to go "on sale" before buying have a
problem: The market hasn't suffered a decline of 3% or more since the
days before the U.S. presidential election.
It’s been an uncharacteristically
calm year on Wall Street. There have been no "Clearance" type
investment opportunities. That's created a dilemma for anyone hoping
for much cheaper prices before getting in the stock market -- a strategy
known as "buying the dips."
In fact, waiting for a drop has
caused many investors to miss out on market gains of around 10% this
Tuesday's action on Wall Street
was a perfect example, as the Dow Jones industrial average surged nearly 200
points, its biggest one-day jump since April 25, and the Standard & Poor's
500 stock index rebounded 1% after both indexes
suffered mini-dips last week.
The S&P 500 has notched
29 record highs this year with little turbulence. Not even the unsettling
headlines recently: North Korea's nuclear ambitions or chaos at the White
House have caused a big market decline.
The S&P 500 has gone 199 days
without suffering a 3% drop – the second-longest stretch since 1950 and
longest since 1995-1996, according to LPL Financial. The large-company stock
index hasn't suffered a "pullback," or decline of 5% or more, since
last June, when Britain surprised investors by voting to exit the European
Union. You have to go back to the early-year selloff in 2016 for the market's
last official correction, or 10%-plus plunge.
While this type of steadily
rising market is good news for investors already in the market, it has caused
hesitation for investors that are looking to get in but fear buying at a
"A lot of my clients keep
coming to me expressing concern because the market keeps powering to
all-time highs and we have not had a correction in a long time," says Jeff
Kravetz, a Phoenix-based regional manager at U.S. Bank Private Wealth
In a report, Burt White, chief
investment officer at LPL Financial, framed the challenge facing investors
this way: "Buy The Dip? What Dip?"
The "absence of pullbacks is
perhaps the biggest story" of the year, he says. Stock market
downdrafts, history shows, are normally common occurrences. Since 1950, the
S&P 500 has suffered declines of 3% or more 4.3 times per year, on average,
and 5% drops 2.5 times per year, White says.
The market's steady ascent in
2017 has been driven by a U.S. economy that continues to chug along at a slow
but sustainable pace and the fact that stocks remain the investment of choice
due to the smaller returns of low-yielding bonds, says Nick Sargen, chief
economist and senior investment strategist at Fort Washington Investment
Still, Wall Street pros say it
makes little financial sense for investors to stay out of the market forever.
"Too many people wait for the
perfect time to invest, but there is no perfect time," says JJ Kinahan,
chief strategist at TD Ameritrade.
Here are some strategies
that investors can employ:
*Don't invest all your cash at
once. A big mistake investors make is viewing their decision as "all
or nothing," says Kinahan. If you have $20,000 to invest, for example,
scale in to the market like the pros do by putting 20% of your money in to
Kravetz refers to this strategy
as "staging into the market" and says that's what he's now recommending
to his clients. "Phase your money in over three or four months," he
*Buy the mini-dips. You
don't have to wait for the market to crack before buying. In other words,
waiting for a 5% to 10% drop might keep you out of the market for too long.
"Use the smaller dips to dip your toes back into the market,"
For investors already fully
invested in stocks, a rising market trading near record highs is a good
time to review your portfolio and make sure that the rising prices haven't left
it with too large a helping of stocks, adds Kravetz.
Investors that wait for a
pullback or a correction that never comes risk having to buy into the market at
even higher prices if the rally continues, warns Hank Smith, chief investment
officer at Haverford Trust in Radnor, PA. Another risk is waiting for a drop of
10% before getting in, as many investors are too scared to rush into the market
when the market is down that much.
"It's human nature; very few
people have the ability that Warren Buffett has emotionally to buy when
people are fearful," Smith says.
here for the original article from USA