investing

6 ways to get back into the stock market

Stock market ticker
Highlights
  • Establish financial security by building a big cash stash as backup.
  • Get emotions out of investing by finding a plan you can stick with.
  • Dollar cost average into the market rather than investing all at once.

The secret to investing in the stock market is to buy low and sell high. Unfortunately, many investors found themselves doing the reverse -- jumping out of the market near its low in March 2009 and then missing the rebound that followed.

Lately, the stock market's behavior has been dicey at best. Since no one can pinpoint the exact moment that market volatility will subside, now may be as good a time as ever for those on the investing sidelines to wade back into the fray. Starting with a solid plan may help allay fears.

These six strategies can help you manage downturns while investing for your goals.

Boost emergency fund

Depending on your investment plan and time horizon, seeing your stocks sink can be a scary feeling.

To avoid feeling as though your financial future is going down the drain, keep plenty of money in an emergency fund.

"If you anticipate needing that money in two years or if you might need living expenses, you should have at least a year, maybe two years' worth of living expenses in money markets or CDs that you can draw on," says Ilene Davis, a Certified Financial Planner in Cocoa, Fla.

If you know your cash needs are taken care of in the short term, it's easier to relax and let your long-term investing work.

Design a plan

A stable financial plan will take stock market volatility into account. Whether you're running your own investment plan or hiring an adviser to do it for you, understanding your emotional fortitude, investing objectives and time horizon will help shape the plan.

"Investing should not be emotional. It should be very rational and it should key off of a financial plan," says David Keator, partner at the Keator Group, a wealth management firm in Lenox, Mass.

The world has no shortage of investing theories. Finding one that suits you and sticking with it is the key to making your plan work.

Asset allocation goes a long way toward managing risk. Bankrate's story, "How to build a sound portfolio," shows different strategies depending on your investment objectives.

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Consider risk tolerance

If you're the type to fret during times of stock market volatility, it won't matter if you can double or triple your money in a particular holding because you won't make it to the end -- at least not with your sanity intact.

A financial plan only works when you can stick with it.

"It's not necessarily about just rate of return, but also hitting your objectives and making you emotionally be sound regardless of what is happening in the macro environment," says Julie Murphy-Casserly, founder of JMC Wealth Management in Chicago and author of "The Emotion Behind Money."

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