Fund inflows rise as investors decide how to get back into the market

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After enduring the stock market's nearly 65 percent sell-off that began last September and then watching anxiously during its 30 percent recovery from its March low-point, many investors who have been waiting until things stabilize now face a critical decision: when to get back into the market and become fully invested again.

Consulting firm Strategic Insight reported this week that many investors have already begun pouring money back into the equity markets during the first part of this year. In the second quarter, U.S. investors funneled $136 billion into stock and bond mutual funds, the best quarter for long-term funds since the first quarter of 2007, when more than $150 billion was channeled into mutual funds.

"Including June, equity funds have now enjoyed three straight months of solid inflows," said Strategic Insight's senior research analyst Loren Fox in a company statement. "Investors are tiptoeing back into riskier asset classes."

But even as the billions have been flowing back into mutual funds and the equity markets have rallied, some investors have remained in cash fearing another market drop. With the market spiking 256 points yesterday and posting its best weekly gain since March, it may be decision time for those still stuck on the fence.

"If you sold stocks or stock mutual funds over the past year because your portfolio was hemorrhaging money and you wanted to stop the bleeding, the bleeding might well be over," said Richard Ferri, a Chartered Financial Advisor and CEO of independent investment advisory firm Portfolio Solutions, LLC.

Whether you believe the markets have stabilized or not, Ferri says there is no ideal time to get back in because trying to "time the market" is a fruitless exercise. He maintains that the more important question is "How do you approach getting back into the market?"

Experts say investors can either dive back in totally or ease back in little by little. Ferri suggests investors get back into the market based on what they did with their portfolio in reaction to the market's recent crash.

If investors were lucky enough to have sold off their stocks or mutual funds on the higher end of the plunge, they will be re-entering the market with a built in gain. Ferri suggests that they select an amount of money they wish to invest long term, determine what their full allocation will be and then execute their trades.

If investors sold off their portfolio closer to March this year when stocks were at lower prices than they are now, Brent Brodeski, managing partner of wealth manager Savant Capital Management suggests reinvesting gradually.

"An investor who had a target stock allocation of 70 percent, but is now in all cash may consider adding about six percent of the cash into stocks every month over the next 12 months," Brodeski advises.

Ferri suggests a slightly different approach to easing back in. "I recommend investing one quarter of your expected total allocation to stocks now and then feed in the rest each quarter over the next year or two," he says.

Whether investors plunge in or ease in, developing an investment strategy to get back in at some point is a must. "The wrong answer is to do nothing," says Brodeski.

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