THE BLOG
12/11/2014 04:37 pm ET Updated Feb 10, 2015

Dow 18,000 Spooking You?

The Dow is within striking range of 18,000 and may hit it by the time I post this article.

To be honest, it really doesn't mean a lot. Many investors get really spooked by these levels. I'm not sure why. If I had to guess why they get spooked, I'd say it's because they are reminders of previous investing mistakes.

A market high does not indicate a looming correction, nor a market that will continue up like a rocket going into orbit. So there's the confusion as to what investors should do when we hit these new levels.

So if your are spooked by Dow 18,000 here are some tips:

Dollar-cost average.
If you have new money to invest, but are nervous about where the markets are right now, dollar-cost averaging is your best friend. Whether you have a lump sum to invest or you are adding to your 401(k) at work, this is your first strategy to use at a market high. Dollar-cost averaging is a technique where equal amounts are invested over a set period of time. (example $1,000 for 10 months) By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. Not to mention it will keep you from having a nice stroke if the market drops after you throw a large chunk in.

Ignore the herd.
It's human nature to join the crowd to not get left behind. When it comes to investing, follow your plan. Do what you need to do for your future and avoid the "hot tips". Don't listen to advice from your family, friends, co-workers or other well-intentioned financially challenged individuals in your life. If everyone else is doing it, maybe it's time for you to do the opposite? Be patient, but don't procrastinate either.

Don't be in a hurry to "get in on the hot investment." Investing opportunities are like buses, if you missed the first another will be along in a few minutes. On the flip side of patience, is procrastination. Don't wait for the perfect time to invest. There isn't one. If you're that afraid, just pass. If you are just nervous, but want to invest, then invest using dollar-cost average. You may want to do this early to catch the best prices before the rally gets going even higher.

Diversify globally.
Most American investors put the majority of their money domestic markets. That's dumb. America only accounts for about one fifth of the world's economy. By spreading it out among other markets, you'll potentially catch the next market rally somewhere else in the world. This could be a much better idea if you procrastinated and didn't enter the bull market early enough.

Nobody can predict the weather or the direction of the market.
How many times have economists told you the wrong thing? Your local weather person is more accurate than these guys! I don't know how many of them said this market will correct substantially, it can't go this high, blah, blah, blah. Really? Ignore the predictions and stick to your overall plan.

It's easy to listen to friends or the media discussing gloom and doom. Every time we hit a new high these guys crawl out of the woodwork when the lights come on, like cockroaches in a dirty motel (maybe that was a little disgusting). No need to get spooked, just follow your plan, and if you are still worried I'll be happy to give you a second opinion.

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