Is Now the Time to Get Back Into Stocks?

Oct. 14, 2008 — -- Brutal. That's the only way to describe last week's stock market rout.

There's no getting around the pain triggered by the worst single week in the history of the Dow Jones industrial average. It has millions of Americans worried about their financial futures.

Despite recent events, however, I stand with countless other financial planners who have advised individual investors to resist panic and the urge to liquidate entire portfolios in favor of all cash. A 100 percent cash portfolio simply is not going to build the retirement nest egg most of us need to accumulate, and not one of us can say when the right time to jump back into the market will be.

Still, it's understandable many small investors feel a need to take action rather than watch our financial futures wash down a Wall Street drain. The good news is that there are a number of positive steps you can take even if stock prices continue to decline.

Here are five steps you might consider:

Buy, yes, buy stock funds. That's because the key to successful investing is quite simple: You want to buy low and sell high. And right now stocks are available at a lower price than they have been for quite some time.

If you have the cash on hand, look to fill gaps in your current asset allocation, whether those gaps are in large caps, small caps or even international. In my view, the best way to do this is through either index mutual funds or exchange traded funds.

If you're worried about the potential for further declines, then make a series of moderate purchases rather than one large buy.

Rebalance. With the 40 percent plus drop in stock prices this year, there's a good chance the target allocation for the stock portion of your portfolio is down while cash and bonds have assumed larger positions.

For instance, the asset allocation target I've set for my own portfolio is 85 percent stocks, 10 percent bonds and 5 percent cash. The stock market nose dive, however, brought my allocation to 79 percent stocks, 11 percent bonds and 9 percent cash at the start of this week.