Should you pull out of the stock market?
Standard & Poor's downgraded its credit outlook for the United States this week; gas prices are rising; Europe is facing serious debt problems and Japan continues to struggle with its nuclear crisis. There's an awful lot to worry about these days.
But financial commentator Greg Heberlein reminds us that Wall Street climbs a wall of worry, and says you should stay in the market and look for buying opportunities.
Greg's analysis:
- Since the stock market has nearly doubled in two years, some might think a significant downturn may face us. But look at it this way – that drop was a giveback to earlier, better times. If the nation’s economy is recovering, the market’s comeback may be just beginning.
- Corporate profits continue to hit records, but many stocks need big gains to reach all-time highs.
- When the market is overheated, price-to-earnings ratios soar. With so much going right, are the ratios skipping to bubble levels such as 25 or more? Not even close. The Dow Jones industrial average’s P/E is 15, dead on its historical average. That suggests the market could go either way. With that wonderful wall of worries, one would expect any downturn would be brief.
This isn’t a call for market timing. It is obvious many individuals pulled their money out of the market from 2008 to 2010. Now wouldn’t be a bad time to average your way back in – put a reasonable share of your cash into stocks on a monthly or quarterly basis. Don’t risk it all at once. Avoid the big losses.
