Getting Back in the Investment Game
Richard A. Weiss
Chief Investment Officer, City National Bank

Recent good news about the economy has many investors asking if it’s time to get back in the investment game.

At City National Bank, we believe that the domestic economy is in the initial stages of a sustainable recovery and, therefore, stocks will generally outperform bonds for the foreseeable future. Nevertheless, this does not mean investors should immediately shift all of their assets into stocks to make a short-term killing.

Studies have proven that short-term market timing – trying to pick the exact peaks and valleys of the markets – is a losing proposition. Investing wisely is a long-term discipline. For example, if you would have been fully invested in the stock market for the past 60 years, a $1,000 initial investment would have grown to over $225,000 today. However, if you missed the 100 best days in the market, your $1,000 would have grown to only $7,500. A 97% difference in winnings for being out of the market less than 1% of the time.

Here are some additional considerations:

• An asset allocation shift is usually not an “all or nothing” decision. Reallocation by reducing one asset class to add exposure in another can, and should, be done incrementally.
• Diversification is an important and relevant issue. If you’re buying individual equity securities, avoid the risks associated with concentrations in any one stock or sector. We consider more than 10% in any one holding to be a concentrated position.
• The timing of an asset allocation shift does not have to be all or nothing. Typically, we “leg in” to the market over a period of three to six weeks. However, during the recent three-year bear market we were placing equity money over a three-to-six-month horizon – in some cases, longer.
• To ease back into the market, investors can “dollar cost average” – a technique that divides a purchase into equal dollar installments over time. With dollar cost averaging, you purchase more shares at a lower average price and mitigate risk.

One last consideration about making investment shifts is the tax impact. It is critical to analyze all investment decisions on an after-tax basis, as we do for our tax-sensitive clients.

So, is it time to get back in the game? Well, that ultimately depends on the unique financial situation for each investor. But one thing is certain: Now is a good time to re-evaluate your overall investment plan and reassess your asset allocation.

This article is for information and education purposes only and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. Clients should evaluate the merits and risks associated with relying on any information provided.