Should I Get Out of the Stock Market?

Whether to invest or not invest in stocks is dependent on your tolerance for risk, the amount of time you have till retirement and if you have other investment options open to you. Market weakness such as what we've experienced over the past couple of years is by itself not a good reason to leave the stock market. Markets rise and fall, but over the long-term a well-diversified portfolio of stocks will provide a positive rate of return. Three areas to consider when deciding if you should pull your money out of the stock market:

• Risk Tolerance. Your risk tolerance is as unique as you are. What might seem like an exciting roller coaster ride for some can be a frightening ordeal for others. If investing in the stock market is keeping you up at night, your risk tolerance might be better suited to safer investments such as bank CDs or money market funds.
• Time Till Retirement. The amount of time you have left until retirement will likely have an impact on how risk averse you are. The more time you have to recover from losses the more likely you are to invest in the stock market. You should keep in mind, however, that most people spend over 20 years in retirement. Keeping some money in the stock market even as you enter retirement will likely prove to be a good investment.
• Other Investment Options. You should evaluate other investment options. If your risk tolerance and time horizon are leading you away from investing in the stock market, consider your other investment options. After you've paid down any debt and saved 12-18 months of living expenses in an FDIC-insured savings account, you can look into other investment options. You might consider real estate, bonds or bank CDs to be attractive investment alternatives.

Generally speaking, any money you need in the next year should be in cash. After that, any money you need in the next two to five years should be in a safe fixed-income investment, such as CDs or bonds. Any money you don't need in the next five to 10 years, you should look at investing in the stock market.

Keep in mind that within the stock market there are safer investments and riskier investments. If your risk tolerance is low you might consider so called 'blue chip' stocks. These are larger companies with strong historical patterns of profitability. They will likely have lower rates of growth, but in a down market will be safer investments in the long term.