Is Now the Time to Reinvest?

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Many may be reluctant to jump back in to the stock market, especially with such large losses over the past year.

Wall Street, however, is showing new signs of life. So-- is it time to take a fresh look at stocks?

For Ellen Flynn, the word investing is synonymous with fear.

Her former financial advisor invested one-third of her income in a feeder fund tied to convicted felon, Bernard Madoff. She lost it all.

"I really thought I just need to be able to touch this money and feel secure about it," she recalled.

Flynn's new financial advisor has convinced her to put her money back in the market and invest long term in diversified mutual funds.

That's good advice if time is on your side.

"I can tell you 25 years from now, the market is going to be a lot higher than it is today," said John Sterba, chairman of Investment Management Advisors, Inc.

A study by Brinson, Hood and Beebower looked at the wealthiest investors and concluded that trying to buy low and sell high was responsible for only 2 percent of their overall performance. Sinking a large amount of money into one stock was responsible for less than 5 percent.

Overall, wealth was generated over time by investors putting their money in different markets and diversifying.

Most financial advisors agree that the stock market rises on average about 8 to 10 percent per year.

Still, there's no consensus on whether now is the right time to reinvest.

"Presently, yes, stocks offer pretty good opportunity, but looking further down the road, some caution is warranted," said Jeff Kleintop of LPL Financial.

There's always an element of risk when investing in stocks, especially if an individual is planning for retirement in the next five years.

Even now, as the Dow flirts with 10,000 again, some economists fear the country is headed for a deeper recession, where values go down before they go back up.

"The stock market is not for everyone," Kleintop said. "In fact there have been tremendous gains in the bond market over the course of the last six months."

"Keep in mind where you're comfortable, where you can sleep at night," he added.

If a person doesn't need the money for a decade or more, now may be the time to selectively jump back in.

There's still room for the market to recover, but it could take months to several years before a large gain.

*Original broadcast October 9, 2009.

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