How you re-enter the stock market matters, especially if you've taken a hiatus. Even if you're anxious to get back in the game, you'll want to buy into stocks gradually. Investing a set amount periodically, a strategy called dollar-cost averaging, helps you psych yourself into sticking to your investment plan and lowers the average per-share cost of your stock holdings by ensuring that you buy more shares when prices are down and fewer shares when they're richly priced.
You might want to let someone else figure out how much of which assets to own. Hybrid funds, which include target-date funds and balanced funds, toggle between stocks, bonds and money markets, within set parameters. Industry giants Fidelity, T. Rowe Price and Vanguard offer target-date funds. We have a slight preference for the Price and Vanguard funds. Price's funds have the most aggressive mix, and Vanguard's the most conservative.
For super-skittish investors, financial planner George Kiraly Jr., at LodeStar Advisory Group, in Short Hills, N.J., favors Vanguard Wellesley Income Fund (VWINX). The fund, which holds about one-third of its assets in stocks and the rest in high-quality bonds, lost only 10 percent in 2008 and has returned nearly 8 percent annualized over the past decade.
If wild swings in the market wreak havoc with your financial fortitude, focus on low-volatility investing. By sidestepping big market swings, you won't just sleep better, you may even beat the market in the long run. That's because large losses often cost investors more than big gains can make up. Research coauthored by Brendan Bradley, director of managed volatility strategies at Boston-based Acadian Asset Management, shows that from 1968 through 2012, a portfolio of low-volatility stocks would have returned 11.2 percent annualized, compared with 9.5 percent for the S&P 500. You'll find scads of low-volatility stocks among the household names on your shelves (think General Mills, Clorox and Johnson & Johnson). Make sure the stock's beta, which you can find on investing sites such as Yahoo Finance, is below the market's beta of 1. The easiest way to go low-vol is with one of a new crop of exchange-traded funds, such as PowerShares S&P 500 Low Volatility Portfolio (SPLV).
(Anne Kates Smith is a senior editor at Kiplinger's Personal Finance magazine. Send your questions and comments to email@example.com. And for more on this and similar money topics, visit http://www.Kiplinger.com.)