Now that the stock market has recovered somewhat, do you feel a bit less satisfied about your high interest savings accounts and your high interest checking accounts? If you were one of many people who’ve decided to shelter your money into cash accounts earning 1% to 2% returns in recent months, you may now be wondering what to do next. Even the best cd rates may no longer be holding the same allure they had a mere few months ago.
While things look much better on the surface, the underlying fundamentals aren’t too rosy just yet. The economy is recovering but its health hasn’t been fully restored. So I thought to weigh in on a few tips for those who are aching to jump back into the market right now.
- Watch your debt first – Before you take on the additional risk of investing in the stock market, make sure that you take care of your debts first. In particular, work to pay down your credit card, perhaps by moving your balance into low interest credit cards or by using balance transfer credit cards with low rates. Just make sure you wipe out your debt before the promotional period is over. If you’ve got other debts on your plate such as student loans or a car loan, make sure you can address these obligations first and that you’ve got the cash flow and funds to cover these before you decide to make big moves in the market.
- Reevaluate your entire investment portfolio. – During the downturn, a lot of investors were afraid to check with their online stock brokers and mutual fund companies for fear of seeing the damage inflicted upon their investments. I was one of those people who was afraid to look. Well, now is an opportune time to review the status of your investments and to find out if indeed, it makes sense to wade into the market right now. If your asset allocation is out of whack, it would be a decent excuse to rebalance your portfolio to restore its original allocation. Otherwise, I’d be careful to do any market timing moves based solely on an emotional decision.
- Reassess your financial goals – Are your investments in the market still helping you stay on target towards your financial goals? Here’s an example when your goals should influence what you should do next: if you’ve got a child who’s ready to go to college soon, and you’ve got his or her college fund in stocks, then I would think about moving those funds out of riskier assets right about now to prevent this from being jeopardized by the volatility in the markets.
- Seek long term growth not short term profits – A lot of investors make the mistake of becoming too myopic about their investments. They’re parked by their discount broker, watching their money like a hawk, obsessing about every move their stocks make. I think doing this can only affect your portfolio negatively, since focusing on short term movements can only disturb or excite you, potentially causing you to make rash moves based on emotional decisions you make. By looking ahead at the long term, you’ll keep your mind on investment strategy rather than fall prey to fickle emotions that could only spell trouble for your investments.
- Keep track of current events – Knowing what’s going on with our economy and the financial state of affairs of our nation and the rest of the world can help us gauge trends. While it’s a good idea to keep our eye on the long term, it’s also wise to be aware of what’s going on. I keep tabs on the markets to see if there are opportunities that come up that I can participate in. When prices are down and people are glum, there are many opportunities that may present themselves to savvy investors.