With the US stock markets at or in some cases approaching multi-year or all time highs, it seems like there is just no stopping the bulls as they forge ahead. Even when a particular economic report or indicator that points in a negative direction trickles in, it seems like it's quickly swept aside or explained away as the markets continue to push higher.
In his recent MSN Money article, "Which is right: Stocks or economy?" Anthony Mirhaydari echoes similar sentiment, stating, "I think we're seeing another turnaround point right now as the major averages go vertical and gauges of investor sentiment reach levels not seen since the 2000 dot-com bubble; even as the economy, by some measures, shows signs of falling back into recession."
Personally, I feel like I've already missed the bus so to speak with this market rally, and I'm not going to jump on to finish the ride as it nears the end of the road, culminating in a plunge off a cliff. I'd rather wait it out, possibly missing out on a few opportunities along the way, to see where this rally goes and what opportunities might be presented afterward.
Adopting a Wait and See Approach
Sitting on my hands is kind of hard when it comes to the current market conditions since it seems like lately the stock market has been going up almost daily, but I know it won't last forever. While I've heard some analysts forecast continued long-term growth for the markets, I just don't have faith. With continued issues in Europe and the US far from what I would consider out from under the shadow of recession, I'm currently adopting a wait and see approach. I see no reason to jump the gun only to regret it in a year or so.
Biding My Time and Building a Cash Surplus
In the meantime, I'm content to start building a small cash surplus in addition to our emergency fund. Currently, our family has an emergency fund of about $5,000 that we try to maintain to protect against a variety of unforeseen events that can occur. This is money that we don't plan to touch or use for anything other than financial emergencies. Therefore, I'm now working to stockpile a little extra cash that will remain in liquid form to help us prepare for any opportunities that might arise in the meantime or when the market starts to tank.
Jumping When the Opportunity is Right
With some available cash in hand, I hope to provide myself with the chance to jump on an opportunity if or when it presents itself. While I have no illusions about being able to judge a bottom to the market, at least being able to jump in when the time is right and after prices have dropped significantly could have me buying low, if not at the bottom. Even if prices haven't hit bottom, if I buy a bit at a time as they continue to bottom out, I might be able to dollar cost average along the way so that I hit several prices points along the way as the market falls.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
Mirhaydari, Anthony. MSN Money. "Which is right: Stock or economy?" January 25, 2013. http://money.msn.com/top-stocks/post.aspx?post=ac4c2771-0d57-4022-9cc3-79e8a1115521. January 30, 2013.