Importance of Market Valuations

There is a lot of talk today about a global slow down and possible recession in the relatively near future.  Markets are still near all-time highs, and are close to setting some records in terms of longevity (how long we've had a bull market).  Market valuations are a key concern in this type of environment.  I'm not making any predictions in this post, but I would like to provide some thoughts about new investments in this type of environment.  Check out this piece for more info, but my take is below.

Let's say you are changing jobs and are looking to rollover your current 401k.  If your new plan allows it, you may decide to roll it into a new plan, or you may want other options and look for a simple IRA.  Let's say you go with the IRA.  So now you have this chunk of cash to reinvest, since you can't rollover the investments directly.  Do you invest all the cash at once in an array of investments, or do you do so over time?  I believe the best approach is to do so over time (maybe in as little as monthly for a year).  This is because we never truly know what the market is going to do in the future, regardless of our own assessments of market valuations or conditions.  You may think stocks are cheap, but sometimes that happens for a reason.  And as the flyer points out, investing at the wrong valuations doesn't necessary mean you will lose, but it could take much longer to come out ahead and seriously dent returns.

My point is this:  Never rush into an investment because you have a chunk of cash.  Assess the market and the opportunities out there, and ask your advisor for their advice.  Be skeptical if they want to throw it all in at once.  You worked hard for that money, it's not wise to invest it all at once without some homework and reasonable expectations.