3Qs: How to play a bull market | news @ Northeastern

The founder of one investment research firm pointed out that the four-year bull market has entered its final stage, a historically profitable one, with average gains of 38 percent. How should a young investor who wants to play the market for the first time allocate his assets in order to maximize his earning potential? What about a returning investor who fled the market and clung to low-yielding assets such as cash and bonds?

Investing now is good idea. Since 1926, the annu?al?ized return on U.S. stocks is 9 per?cent, which I would be thrilled with. A new investor should focus on two things: risk and time. I can?t promise a pos?i?tive return. How?ever, I can reduce the prob?a?bility of a sig?nif?i?cant loss. Iden?tify a diver?si?fied mutual fund with low expenses. Mutual funds offer pro?fes?sional man?age?ment and risk reduc?tion through diver?si?fi?ca?tion. Main?tain a long-??term per?spec?tive. Invest a modest amount to get started and as you get com?fort?able with the risk, add to your invest?ment on a reg?ular?basis.

I know many investors holding cash and bonds right now. These investors got burned by the 40 per?cent drop in stock values and got out. It?s all about asset allo?ca?tion.? They need to decide if they are willing to take more risk to cap?ture poten?tially higher returns. Most investors would ben?efit from a rea?son?able allo?ca?tion to U.S. equi?ties over a longer time horizon. I?d encourage these folks to invest in stocks but at a more modest allo?ca?tion than they had back in 2008.? As time passes, this allo?ca?tion can be increased while also being tem?pered by the pain of their past experience.

Source: http://www.northeastern.edu/news/2013/03/bullmarket/

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