Tuesday, February 17, 2009

Is Investing Now Like Trying To Catch A Falling Knife?

Due to the treacherous equities markets of the last 16 months, many individuals are afraid to invest new dollars at this point. Most would prefer to wait until the outlook is clear and the crisis is over before diving back into the market.

However, waiting until the outlook is clear is frequently very costly for investors. Reviewing the beginning of 22 bull markets, the Leuthold Group found that bull market gains have been front-end loaded. The average gain was 18.1 percent in the first three months of a bull rally, 26.4 percent in the first six months, and 45.8 percent in the first year.

An investor who waits a year before getting back into the market may miss half the total bull market gain, as the average bull market gain amounts to 83.6 percent.

Almost perversely, it seems the investor who waits for the knife to fall harmlessly to the floor may be hurt the worst.

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