“Stocks Rebound Despite Big Jump In June Inflation” said the top-of-the-fold, Page One headline in yesterday’s Washington Post. The sub-head said: “Financial Shares Post Double-Digit Gains”.

The Washington Times credited the improvement (if that’s what it is) in the market on a good report from Wells Fargo and lower (slightly) prices for crude oil. This time next week we could be back in the toilet. So what’s an investor to do?

Buy low, sell high. Of course.

Just about everybody knows you are supposed to buy low and sell high. Some people actually do it. The problem, for most of us, is knowing (not guessing, not hoping, but knowing) when it is high and when it is low.

Financial planner Paul Yurachek says that trying to time the market – to sell before it drops and buy before it rises – is like jumping from one ship to another in stormy seas. Or trying to board a fast-moving train after it has left the station. Both are possible, but tricky.

Less than 2 years ago owning a house was not only a place (with tax breaks) to live, but also an investment. Possibly the biggest investment for many, if not most, people.

Values were going up 10 percent in many places, and 20 percent a year in some parts of the metro Washington area. I considered dumping my brick shoebox of nearly 30 years and using the cash to buy Mount Vernon, even though it’s outside the Beltway. But that was then and this is now. People who were giddy about the value of real estate (including those who wanted a real estate investment trust in the federal Thrift Savings Plan) are now upset because the value of their house has shrunk.

One expert says the 24-hour financial news cycle on television is “driving a lot of people crazy” because they think that what they are seeing is the way it is always going to be. “You can’t remove psychology from the equation. People are humans but their reaction to the stock market is more animal-like. It gets down to ‘fight or flight’ and many choose to flee, as in bail out,” he said.

Dennis Gurtz, a Bethesda-based financial planner said the first half of the buy-low-sell-high mantra is, you got it: buying low. The way to avoid buying high is via dollar-cost-averaging. That is investing the same amount of money at regular intervals. When a stock or fund is low you get more shares for your money. When it’s riding high you purchase fewer shares but using the same amount of money.

He recommends that people who want to get out of stock funds – like the C, S and I funds of the TSP – use the dollar cost averaging method. In his example, an individual might take a fixed amount (say 25 percent) now, and a similar amount out in 6 months, and so on. That way, Gurtz says, it is either lower or continuing its downward spiral or its going up.

So what does he recommend for good times and bad:

1. Have cash readily available to cover short-term needs. A three month reserve is good, a 12-month nest egg is better yet. For people seeking to reduce their stock market risk Gurtz suggests the treasury-securities based G-fund rather than the bond-indexed F-fund.
2. Diversify. Practice asset allocation. Spread your investments (but don’t invest in individual stocks) across various markets. In the TSP that would mean some in the S, some in the I, and some in the C fund. That covers the U.S. stock market and much of the international market.
3. Dollar-cost-average whether you are going into the market or getting out of it.

Earlier this week Gurtz joined Francis Rose and me on our “Your Turn” show. You can catch it live (on the radio or the internet) each Wednesday at 10 a.m. EDT. The shows are also archived. If you want to hear the full Gurtz interview click here. On the same show, Tom Trabucco of the Federal Retirement Thrift Investment Board, talks about congressional efforts to expand investment options for federal and military personnel, plus a TSP report.

Nearly Useless Factoid

According to The National Geographic, a previously unknown species of meat-eating slug that sucks up earthworms like spaghetti has been discovered in Wales. “The nocturnal predator is armed with blade-like teeth for slicing through animal flesh and can measure up to 5 inches (13 centimeters) long when stalking its prey.” No word on how big it is when not stalking prey.

To reach me: mcausey@federalnewsradio.com

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