The Only Way to Profit From the Recovery

The turnaround you won't see coming
When stocks recover (and they will recover), they will do so dramatically and without warning.

Period	Market Decline	DJIA Change 1 Year After Decline	DJIA Change 2 Years After Decline (cumulative)
Dec. 1961 -- June 1962	(27.1%)	32.3%	55.1%
Feb. 1966 -- May 1970	(36.6%)	43.6%	53.9%
Jan. 1973 -- Dec. 1974	(45.1%)	42.2%	66.5%
Sep. 1976 -- Feb. 1978	(26.9%)	9%	15.1%
Aug. 1987 -- Oct. 1987	(36.1%)	22.9%	54.3%
July 1990 -- Oct. 1990	(21.2%)	26.2%	32.6%
Jan. 2000 -- March 2003	(35.8%)	34.6%	43.2%
Average	(32.7%)	29.4%	45.8%
Oct. 2007 -- Dec. 2008	(46.7%)	?	?

Will you make back all of the money you've lost this year over the next two? It's unlikely, given that the market would have to nearly double from here to get back to its October 2007 high.

But it is likely that if you pull out of the market, you'll miss out on the recovery. And if that recovery resembles the magnitude of those we've seen before, missing out will add many years to the process of building back your wealth.

Company	Decline, Jan. 2000 – March 2003	Change 2 Years After Decline
Apple (Nasdaq: AAPL)	(74.7%)	488.6%
Best Buy (NYSE: BBY)	(29.6%)	97.5%
Boeing (NYSE: BA)	(38.2%)	127.7%
Copart (Nasdaq: CPRT)	(40.9%)	209.6%
Genentech (NYSE: DNA)	(48.5%)	223.3%
McDonald's (NYSE: MCD)	(63.5%)	121.6%
T. Rowe Price (Nasdaq: TROW)	(22.8%)	114.8%

By simply holding some of these stocks, you could have come out ahead. If you continued to add new money to these stocks while they were down, you would have further accelerated your recovery process, and ended up coming out way ahead.

What's the point?
I've heard from many investors recently who are sick of the market and just want to get out. That's a dangerous move -- because the only way to profit from the recovery is to make sure you still have money in the market.

But it's equally dangerous move to keep all of your money in the market, in the hopes that a recovery is imminent and you'll profit from it. While a recovery is coming, no one knows when it's coming. So make sure you:

1. Have an emergency fund in place that you keep in a liquid, inflation-protected asset, such as a TIPS ETF.
2. Make sure your bond exposure is in the proper ballpark. One handy rule of thumb is to make sure the percentage of your portfolio allocated to bonds is the same as your age. For example, if you're 40, you should be 40% in bonds.
3. After confirming No. 1 and No. 2, continue to dollar-cost average into high-quality companies without trying to time the market.

If you do all three of these things, you'll put your portfolio in a position to profit from the recovery -- and you should be able to sleep at night.