If you are a headline reader, then you probably have a good sense of what the stock market has been doing lately. It seems like not a day that goes by lately where we are reading about how stocks are supposedly at all-time highs. The Dow has hit 15,000 and stocks are posting, in general, nice gains which gets all the pundits talking about if it’s time to get out of the stock market or if we will continue to see a solid uptick in the market.
As I am writing this, we have seen roughly a 13.2% gain in the Dow this year which has got to make most who are invested in stocks generally feel pretty good about their portfolios. This has caused me to wonder though, who exactly is benefitting from this trend and what do we need to do if we’re not seeing gains from our stock portfolios.
Who are the ones Benefitting from the Boom?
An article on CNN Money last week discussed this general topic and who is benefitting from the rise we are experiencing in the stock market. The article stated that roughly half (52% to be exact) of Americans are invested in the stock market currently. As someone who has been in the investing industry for a majority of the last 12-15 years, it greatly saddens me to see that half of us are not taking advantage of the gain in stocks.
“We don’t think people are giving enough credit to the strength of the economy,” said Ryan Detrick, a senior technical strategist at Schaeffer’s Investment Research.
“Markets have been responding strongly in the last few weeks and five-year highs have been hit by both the FTSE 100 and the Nikkei index in recent days.
The Dow rose 87 points to 15,056 on the back of jobs data released by the US government that was better than expected. Other world markets have also gained this week and another record-breaker came in Europe, with Germany’s Dax hitting a fresh record, rising 70 points to 8,182.” recently commented a spokesperson from City Index.
What was even more troubling was the study showed that those who would classify themselves as middle class are worse off in that only 50% of those studied in the Gallup poll are investing regularly, and this is down from 66% in 2008. I can understand this to a certain extent. Since 2008, we have gone through The Great Recession, we have seen the unemployment rate hit 10%, and we have seen the market go through convulsions which ravaged peoples 401(k)s and retirement planning as a whole. Added to that the $500 billion that has left the market by way of the individual investor and a lot of that money has been going into bond funds as a result. What this all points to is that those with money or those who have the means and are not held back by fear or caution are the ones who are able to take advantage of these gains the most.
When is the Time to get Back in to the Stock Market?
Please do not take me as a cheerleader of the stock market, who is deluding himself in to thinking that we are going to see a continuous uptrend and that there is no stopping the momentum in sight. That said, I am generally bullish on the market and think that this year will continue to see solid gains.
This is not to say that I do not think there will be a pullback, that is very likely. But if you are sitting entirely out of the stock market right now, at what point do you see the gains and decide that it is time to get back in? Unfortunately too many retail investors play the waiting game, while trying to time the market, and end up only losing out in the end only to actually realize losses when they do decide to get back in. It’s the problem of buying high and selling low.
What many are doing with their money who are sitting out of the market are keeping it primarily in cash. Having a certain amount in your portfolio in cash is one thing, and something that I encourage, so you can take action on an investment if you so choose, but having 10% of your portfolio in cash is one thing and holding 50% or more in cash is another. I have spoken to hundreds, if not thousands, of retail investors over the last several years who are sitting nearly entirely in cash because they are afraid of what might happen to them in the stock market.
I understand that fear, to a certain extent, but being entirely in cash will generally get you nowhere and even more so these days as the rates you can earn on it is abysmal at best. The moral of this is that no one knows what’s going to happen with the market, but I do know that by sitting out of it you give up all the potential gains your hard earned money could be making.
Investing in the Stock Market is Vital to Building Wealth
We all know that the stock market has its ups and downs, and that those with higher pain thresholds are generally able to take advantage of more up days than down. What is lost amidst the talk of the stock market and where it’s at lately is that investing in stocks is vital to building wealth. Whether you are saving for retirement or investing for your children’s future education, taking that long term approach to investing is vital to your future.
If you are indeed investing for retirement, no one knows what the retirement landscape will look like here in the States in another 10, 20, or 30 years. If you are hoping for Social Security being there for you as a supplement, that may not even be an option which means there is an increased onus on you to put money aside, in a well-diversified fashion and taking a long term approach to your investing. If you have stayed out of the stock market the last few years due to fear or lack of direction of where to put your money I encourage you not to allow that to hold you back now.
The worst thing to do is to stay away because of fear and then choose to get back in when stocks do go south. No one can tell you what the stock market will do, and if they say they can then don’t listen to them, but I can tell you that if you do take a long term approach to your investing you will generally see much better growth than by just sitting on the sidelines.
Have you been able to take advantage of the gains in the stock market? What is your sentiment on the direction of it?