qandaQ: What should I do now with the market being so high?

Q:  I have reached the point now where I can invest more heavily into mutual funds and plan to follow your asset mix. I am reluctant to do so now as the market is so high. Should I wait or dollar-cost-average and move forward? There are so many different opinions as to whether the bull market will continue it gets confusing.

A: This is probably the most common question I get. It’s interesting to note that there is a similar feeling after the market has gone down 20 to 30 percent. Investors don’t like to invest when the market is in decline as they sense it will probably keep going down. In other words, there may not be a time it is easy for most investors to invest. I suspect that for many investors dollar cost averaging is the only way they can comfortably put their money to work.

Let me suggest a couple of ways to use dollar cost averaging.  As I know nothing about your personal situation, these ideas may not be appropriate for you. One approach is to put half your money to work immediately and spread the balance over an extended period of time. Twelve months is not uncommon, but I’ve seen people spread it over 36 months. Another approach is to dollar cost average over 12 to 36 months or until the market is down a specific percentage – like 20 or 30 percent. Or you could use a combination of the two strategies.

You might put 25 percent in immediately and spread the balance over 24 months or until the market is down 25 percent. There are dozens of possible combinations, but the fact is you might invest dutifully for whatever period you choose and have everything go just fine. And then when all the money is invested, the market takes a nosedive. So, one of the most important decisions you will make is how much in fixed income to cushion the downside risk when things go wrong?… and they will go wrong. I guarantee it!