I plan to begin investing monthly into index funds that mirror the us stock market. Considering that we....?

Question

have been having a 4-year run up, is this a bad time to start buying "broad" index stocks?

Answer 1

There is NEVER a bad time to start, unless you have a crystal ball. Timing the market has consistently proven itself absolutely impossible, and anyone who tries it will lose. That's not to suggest that you shouldn't monitor your investments and occasionally respond, but that is not as important as your sheer participation.

Invest systematically, especially with mutual funds. Diversify, dollar cost average, and rebalance once to twice a year. The key to mutual fund investing is to do your homework up front, then contribute faithfully and regularly--generally, a fixed amount at fixed intervals. When the fund has grown, you've won; when it's lost, you're buying in more at a discount.

Finally, a word about index funds. There's absolutely nothing wrong with investing in index funds if you're the stubborn type who is going to do this yourself without professional guidance, come hell or high water; but there are too many well-qualified financial advisors and planners out there willing to help you at little or no cost. They can ensure you have a portfolio that represents your objectives and risk tolerances, and will likely beat the index you're looking at.

Answer 2

First of all, index funds are an excellent way to start investing. Index funds outperform actively managed funds year in and year out, and have lower fees. I wouldn't worry about timing. The market has only slightly outperformed it's historic average return over the last four years, and that is coming off of a dismal three year period. Timing is for traders, not for index fund investors. If this is money that you think you will need in the near future, then I would suggest putting it in a money market fund. If you are investing for the future, then stock index funds are an excellent way to go. I personally like ETF's rather than true mutual funds, but either way is a good way to get started.

Answer 3

Excellent question! There is actually a spectrum of Index investors from the autopilot who buys index funds and ignores them to the wannabe fund manager who continually adjusts his/her portfolio of index funds. The wannabe fund managers will listen to that little voice in their head that says, "4 years of up, this can't go on forever..." and they would beef up the fraction of their portfolio that performs well in a bear market, like a Bond Market Index Fund and/or a MoneyMarket Fund.

That way if you are right, you will preserve your capital and you can put it into Stock Index Funds after their prices fall. If you are wrong, you will have half (or some fraction) of your portfolio in the stock market making money for the fifth year of bullishness.

So how much should you put into your Bond Market Index Fund? Well, since you are being a fortune teller, literally, how much do you expect the market to pull back when it does? 10%, 20%, 30%? Do some research to come up with an educated guess on how far you expect the market to decline, when it does decline. Then keep your bond fund funded so that it represents that fraction of your total portfolio. That way, if the stock indices fall 30%, you can move your money from Bonds to Stocks and then wait for the inevitable bull market to return.

After a few years of being your own fund manager, you may decide that it just isn't possible to anticipate what the market will do, and you may move toward the autopilot end of the spectrum.

Answer 4

You're almost always better in the funds than at the bank... somewhere along the line here there is a " correction" coming, but don't let it faze you..you'll get through it and get gains in the long run.
Personally, I don't think you should limit yourself to " U.S index funds".. the whole world is "cooking" right now and great gains can be made in global markets. If you don't want to get into an international fund, consider the ETF's ( that someone else already mentioned) for a small portion of your investment..10-15%.....( with the ETF's you can buy just a few shares here and there..rather than going $ 3000./$ 5000. into one fund )
I doubt that you would regret some kind of move like that... and you can always "watch a little closer" for your first 6-9 months.
Good luck
If you're not real familiar withe the ETF, go to:
http://best-of-etfs.com/family.asp?fam=EXTRADED

Answer 5

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Answer 6

You only need to worry about "timing" the market if you are going to be putting in a lump sum all at once and not contributing again. In this scenario, I would say it's an average time to put money in. The markets aren't terribly overpriced, based on a historical P/E analysis, but they aren't dirt cheap either. However, if you are going to be investing every month or every week, it's not that crucial to time the market. Since you will be dollar cost averaging, it's a great time to start. The sooner you start, the faster you'll get there.