401k Tips

August 13, 2009 Advice from Jason Tyler, Ariel Investments: arielinvestments.com

The Dow peaked at 14,000 in October 2007 and then tumbled all the way to 6,500 on March 9th of this year. Since then we have seen an amazing rebound to nearly 10,000 – an increase from the bottom of over 50%. Emotions were elevated and people were panicked in March. However savvy investors were buying at those lows. Most people have been waiting to get back in and wondering how to reconfigure based on the rebound.

Is it too late to get back in?

Absolutely not. Unless you are retiring in the next few years, you should have a healthy exposure to stocks. The younger you are the more money you should have allocated toward the market. This was true on and before March 9th and is still the case today after this recent rally.

Are cheap deals still out there?

There are two areas I am concerned when looking for cheap deals.

The first is Home Run Seekers. In March of this year, we were faced with once in a lifetime opportunities to buy high-quality stocks at extremely low prices. Now those deals are harder to find. Just because you have heard of companies who have had amazing returns since March doesn't mean you should hastily enter into a company now because you think it might double or triple like we have seen recently.

On the other hand, it is also not a good idea to be timid and completely avoid the stock market based on the rollercoaster ride we have recently witnessed. This past year has been a once in a generation experience and it should not scare you away forever. Over $3 trillion has been erased from the stock market and many investors are shell shocked but overtime, the market is where you need to be investing.

Any other tips? Either for re-entering the market or for reallocating?

I like to tell people to remember 3 key points:

1. Research - It is extremely important to do your homework. Make sure you do a good deal of research on the company you are going to potentially invest in. Do not assume that you are going to find a stock that is going to double or triple in value right away.

Professionals. Use them. Mutual funds are a great way to invest. You'll get diversification and experienced managers with an affordable fee. A professional manager can also provide advice on how your assets should be allocated based on your age and retirement plans. We are also fans of target date funds which automatically adjust their weighting based on your goal.

Marketing timing - Do not try it! Any attempt to do so can get you in over your head. Even the best investors know that market-timing is near impossible. This past year is a good example that market timing doesn't work.

Copyright © 2022 WLS-TV. All Rights Reserved.