Time to Get Back Into the Stock Market?

Not surprisingly, many people have decided to "go to cash" this year and move all their stock and bond investments into money-market funds. While that may be the best plan for some people, most experts advise against it.

In most cases, Mr. Miccolis says, the best advice has been to stick it out, particularly if the client has had a well-diversified portfolio of stocks, bonds, and cash. "That has really been the best strategy, even in the wake of the Great Depression. If you had a nice diversified portfolio in 1929 and stuck with it, you would have done much better than just being in equities." The recovery of the past few weeks illustrates the risk of being out of the market for even a short time, he contends.

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It's a different matter for newer clients. Many have already "cashed out," he says, and wonder how they should get back in.

There are basically two ways to go about it. If you are using mutual funds, for example, decide what mix of stock funds – domestic, international, small cap, and large cap – as well as bond and money-market funds you want. The first option is to go "all in" at once. That is, put all the money you plan to invest into those funds at once. This way, the money will be working for you right away.

The other option is a version of dollar-cost averaging. For many people, particularly those who don't have as much tolerance for risk, this can be a better solution. Unlike with the traditional form of dollar-cost averaging, where the same amount is invested every month for many years (employer-sponsored 401(k) plans, for example), in this variation, a certain percentage of the investor's money is invested each month for the next five or six months. For example, 20 percent of assets would be invested each month on the same date for five months. Doing it on the same day takes speculation out of the equation, Miccolis says. "We need to agree on a calendar date. We don't care what the market's doing; we just agree that on the 15th of the month, every month for the next five months, 20 percent will be invested."