Set A Plan and Get Invested

08/23/2013 9:00 am EST

Focus: STRATEGIES

Janet Brown

Editor, NoLoad Fund*X

If you've been in cash for the last few years, you've missed some gains, but we don't think it's too late to get back in, says fund specialist Janet Brown, editor of NoLoad FundX.

Overall, US markets have been on a tear since last November. After such strong gains this year, we may see more volatility in the market.

Ned Davis Research points out that, historically, when the S&P 500 has gained 15% or more through July, “the benchmark has struggled over the following few months.” If this occurs this year, it could present a buying opportunity for those who are looking to get into the market.

Valuations are still appealing. Stocks are not as expensive as they were in 2007, and the market is different, too. In 2007, most markets had enjoyed strong gains. But this year, many areas of the market haven't participated—look at emerging markets or Europe funds, for example. Eventually some areas will have some potential catching up to do.

Even if this year's rally looked like 2007, that wouldn't tell us whether we were at the peak of the market, ready to face a substantial decline, like 2008.

Market action rarely repeats, so the next bear market is probably not going to be like the previous bear market, just as the latest bull market isn't like the previous one. In 2008, all sectors sank, but that may not hold true in the next decline.

What should you do now? It's easy to get caught up in where the market's been and where it's headed, but if you're considering putting money to work, it's important to take a step back and consider why you are investing in the first place.

Many investors are looking to fund long-term goals, such as retirement or their child's college education. In order to achieve those goals, most investors need their portfolios to grow, and the best option for long- term growth is stocks. The next challenge is what to invest in.

We urge investors to set a plan to get back in the market. We tend to get a substantial part of a portfolio invested right away, and then we invest the rest gradually, on a schedule set in advance, often making additional investments on down days in the market.

When you're ready to get invested, market sell-offs are an opportunity to get invested at lower prices.

If you've been out of the market and missed some gains, you may be tempted to compensate by taking on more risk. We believe it can be better to take less risk when you are just starting to invest again. Remember, you aren't just looking to get invested, you're looking to stay invested.

Meanwhile, our strategy is to Upgrade portfolios into the best performing funds. Upgrading is the investment approach we developed years ago, and have been applying in our client accounts for decades.

It follows market leadership by keeping assets in the best-performing no-load mutual funds and exchange traded funds, as determined by our performance-based ranking system.

Among total return funds, here a look at our current top ranked mutual funds:

  • AmBeacon Balanced (AABPX)

  • Dodge & Cox Balanced (DODBX)

  • Mairs & Powers Balanced (MAPOX)

  • T. Rowe Price Capital Appreciation (PRWCX)

  • Villere Balanced (VILLX)

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