Dollar-cost averaging can get you back into stocks even if you don’t trust the rally
For stock investors, April was the coolest month.
The Dow Jones Industrial Average enjoyed its best April gain in eight years and the biggest two-month advance in percentage terms since the start of the last bull market in November 2002. The Dow is up 25% since its March 9 low, and both the Standard & Poor’s 500 Index and the Nasdaq are staging strong comebacks.
The swift bullish current is carrying international stocks higher as well. The iShares MSCI EAFE Index, an exchange-traded fund that mirrors the benchmark MSCI Europe, Australasia Far East index, rose about 12% in April. Another ETF, iShares MSCI Emerging Markets Index, added about 16%.
After a month like April it’s tempting to wear a cap backwards and wave a rally rag for stocks — but we’ve seen this game before. Stocks have a long way to go to recover from their bear-market mauling, and for many investors, a trust has been broken. Many people simply don’t believe the markets’ spring upswing is for real.
“If you feel uneasy about this rally, there are good reasons,” said Hugh Johnson, chairman of investment firm Johnson Illington Advisors. “It’s in theory signaling better times ahead for the economy and earnings, and yet it’s difficult to make that case.”
From bear to bull
All anyone really knows about the market is that if this rally has roots, it won’t flash an all-clear sign. Stocks rebound quickly: In the first 12 months of a new bull market, the S&P 500 has averaged a 46% gain; the benchmark surged 29% through April 30 from its March 9 bottom.
You obviously don’t want to miss out on future gains, but how can you reengage with the market when you’re skeptical?