IT’S EASY TO BE A HERO IN AN UP MARKET

Neal A. Deutsch, CFP^®

Published in Rivertown Journal, October 2009

Quick quiz. Who sang “Here I come to save the day…” (C’mon…you know you want to finish it loud and proud!)
Who said “…for truth, justice, and the American way.” (Hint- you got a nickel for a phone call on the corner?)
Who proudly stated “Ask not, what our country can do for you, but what you can do for your country.” (No hint needed)
Who’s the most famous pilot since Amelia Earhart? (Think Hudson River)

Hero’s. The stuff real folks are made of. Real hero’s (and make-believe!) do things that benefit others without thinking about themselves first- just look at the above examples. I am sure you can think of many more that may be world famous, or just live in your home. Either way, if they are a hero in your eyes, then let’s clap and cheer- thank goodness for hero’s.

The late 1990’s brought a flurry of day-trading activity to America. Ordinary people, seeing the extended bull market of the 90’s cashed in their CD’s, liquidated their savings, and became day-traders.  They traded on their computers, they traded on their PDA’s, they traded on their phone, and they treaded and traded and traded- until they ran out of money. Then the trading settled down. Why you ask? Because everybody was a hero when the market was up. The turn of the century, loosely, painted a very different picture. If you weren’t clairvoyant, very educated in the markets or very, very lucky, you traded yourself broke.

I am often asked how to decide when it’s time to move funds back into the market. While I can’t explain this in a general forum (thank you SEC and FINRA rules) I would like to discuss a way of moving gently into the market when you think the time is right- a process call “Dollar Cost Averaging.”

Many investors look to the stock market for capital growth, investing in individual securities or mutual funds. Historically, the stock market has charted a long-term upward trend. In the short run, however, daily fluctuation in market prices can make it difficult to decide when to buy.

Rather than trying to time the market by making a single purchase, many investors use a method called dollar cost averaging. Using dollar cost averaging an investor buys the same stock or mutual fund at regular intervals; monthly, or quarterly, and with a fixed amount of investment dollars each time, such as $100 per month or time period.

When the selected stock or mutual fund declines in value, the investor’s $100 will buy a greater number of shares. When the market price increases, the investor’s $100 will buy fewer shares. Over a period of time, as the market prices constantly fluctuate, the average cost per share to the investor will reflect in the median price of the stock for the time period by buying at relative lows, highs, and in the middle. Investments must be regular and the same amount each time. If the investor discontinues the plan when the market value is less than the cost of the shares he or she will obviously lose money. The investor must be willing and able to invest during low price levels, dollar cost averaging cannot assure a profit, and does not protect the investor in a steadily declining market. Dollar cost averaging should be viewed as a long term investment plan.

Essentially, it’s like tip-toeing into the water at the beach- if you’re going to be cold, start only with your toes, then ankles- not all of you. Trying to pick the lows and highs of the market to make your purchases is very difficult- and can lead to great gains or great losses. By dollar cost averaging, while there are no guarantees of gains, you can feel safer by investing gently. Consult your Financial Professional to see if this method of investing is appropriate for you. And then start thinking about who your Hero is…and if you can…TELL THEM!

Neal A. Deutsch is a Certified Financial Planner^™  & Registered Securities Principal, offering securities through First Allied Securities, Inc., member FINRA/SIPC.  Neal is President of Chestnut Investment Group in Suffern, NY, helping people with financial planning since 1984. Please feel free to call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com. Visit his website at www.chestnutinvestment.com