As the Dow Industrials shed another 411 points on Wednesday, the chatter about stocks being on sale is heating up. One way to test the waters while things are cheap is with funds.
Larry Adams, chief investment strategist for Deutsche Bank Private Wealth Management, said he believes now is the time to at least consider getting back in the market. After all, bear markets are down 38% on average, and this market is already down close to 45%. Of course, “diversification is paramount,” Adams said, and the best way to stay diversified is through mutual funds and ETFs, which offer flexibility as well.
The main reason for buying now, when stocks are cheap, is dollar cost averaging, which is essentially a strategy that includes putting bits of money in over time. For example, $1000 last year would buy you 10 shares of blue-chip stock 3M (MMM). Today, you could buy 16 shares of the same stock for the same price. Similarly, a year ago you could have bought 37 shares of the SPDR Tech ETF (XLK) for $1000, while today you could get 65 shares for the same price.
When you dollar cost average, it strips the emotion from investing, Adams said. So while it may not make the latest losses in the market any more bearable, it’s your ticket to getting back in the game when the getting is good.