Time to Get Back Into the Stock Market?

It may be hard to believe, but the stock market has actually staged a decent recovery from its low of just over a month ago. On Nov. 20, the Dow Jones Industrials closed at 7552 while the S&P 500 ended the day at 752. By the end of 2008, the Dow and the S&P 500 had advanced some 16 and 20 percent, respectively.

The floor of the New York Stock Exchange is abuzz with activity late on a down trading day, Wednesday, Jan. 7, 2009 in New York. Investors are slowly returning to the stock market.

(AP Photo)

As nice as those gains are, they have done little to make up for the massive losses investors have faced since the Dow peaked at more than 14000 in October 2007. Now, many of those investors are wondering if they can repair some of the damage to their portfolios – and how. Should they sell? (Maybe this uptick won't last.) Should they jump back into the market with both feet? Should they dip a toe in to see if the water's still too hot? Should they restructure their portfolios? If they do go for a makeover, should they put less in stocks and more in bonds? Should they include other options, such as real estate or gold?

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There is, of course, no right answer for everyone, investment advisers say. "This market has tested people's risk tolerances, and now we know a lot more about where that is for each person," says Casey Mervine, a vice president and financial consultant at Charles Schwab & Co. Some people, he adds, may have had too much exposure to the stock market than they should have had, given their tolerance for risk or, more important, their financial situation or their age.

"We work with a lot of retirees," says Lyn Dippel, a vice president and senior adviser with Financial Advantage, a planning firm in Columbia, Md. "They don't have a long term. They're withdrawing every month from their portfolios."

Financial advisers who have been working with the same clients for several years have been extra busy this year communicating with those clients. For the most part, the message has been about the same, says Jerry Miccolis, senior financial adviser with Brinton Eaton Wealth Advisors in Madison, N.J. "We tell them … 'We recognize that you're nervous, some of you are borderline panicky,' " he says. "What's going on in the markets is an unmitigated disaster; we haven't seen the like of this for several decades."