Is now the time to put my retirement savings in stocks?

Are stocks a bargain right now?
Are stocks a bargain right now?

I'm 100% in cash right now, but I eventually want to invest 70% and 80% of my portfolio in stocks. My gut tells me, however, that I shouldn't consider buying stocks in this market. So I'm thinking of holding off until we enter a bear market and prices are down 20% or more. Do you think this is a good plan? --Paul, Californiam

No. Not only is what you've outlined not a good plan, I don't consider it a plan at all.

Sure, it's tempting given the way the market's been tumbling so far this year to assume that it's prudent to hold off putting your money in stocks. After all, if the stock slump that started in the beginning of the year becomes a full-fledged meltdown, waiting means you'll be able to avoid losses and invest your money at lower prices for big potential gains down the road.

But that strategy -- if you want to call it that -- assumes that you can predict what the market's going to do, and that you'll know the right time to pull the trigger and get into the market. That assumption is dicey at best.

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It's easy with the benefit of 20/20 hindsight to see when bull markets have turned into bears and when bears have bottomed out and morphed into new bulls. In fact, you can do just that by checking out this recent compendium of bull and bear markets since 1929 recently compiled by Yardeni Research. But if you pore over the charts in this report, you'll see right away that the market doesn't go up or down in a straight line. There are lots of squiggles.

Sometimes, for example, the market seems like it may be on its way to a bear (as was the case during the setbacks of 16% in 2010, 19% in 2011 and 12% last August) but then recovers.

Other times, it may appear to be entering a new bull phase only to resume its downward slide. In late 2008, after having dropped more than 50% from its 2007 high, the Standard & Poor's 500 rallied for a 24% gain, only to drop another 28% before finally hitting bottom in March 2009.

The point is that in real time it's impossible to know whether stocks will rise or fall from a given level. You say you want to hold off buying until after the market enters bear market territory, a 20% decline from the previous bull market peak. But what if stocks don't hit your trigger point anytime soon? Will you continue to sit in cash? Even if prices fall significantly? For that matter, if stocks do slip into bear territory, will you really start buying? Or would your gut tell you to hold off even longer because you're worried the market will drop even more? What you're really proposing is nothing more than a guessing game.

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There's a better way to go: Build a mix of stocks and bonds that makes sense given your risk tolerance and how long you plan to keep your money invested, and then largely stick to that mix regardless of what the market is doing.

You mentioned that your target stock exposure is 70% to 80%. Fine. That's probably appropriate if you're investing for a long-term goal like retirement and you're capable of handling some significant dips in the value of your portfolio en route to your goal.

But if you're investing for a shorter period or you plan to dip into your investments soon for retirement income or you get very anxious when the market heads south, then you may want to go with a more conservative stocks-bonds blend. You can get a good idea of how to divvy up your portfolio between stocks and bonds by completing a risk tolerance and asset allocation questionnaire like the free version Vanguard offers online.

Once you decide on a stocks-bonds mix, the question becomes how do you get to that portfolio from your all-cash position? The advice you often hear -- especially in a tumultuous market like this one -- is to dollar-cost average, or move your money from cash to your target portfolio mix a little bit at a time over the course of a year or so. So, for example, if you had, say, $120,000 in cash and wanted to dollar-cost average into a 70% stocks-30% bonds portfolio, you would move roughly $10,000 a month for 12 months, investing $7,000 in stocks and $3,000 in bonds each time.

Related: CNNMoney's Ultimate Guide to Retirement

But while dollar-cost averaging may be emotionally appealing, I don't recommend it. For one thing it suggests that you know, or at least expect, that the market will go down. (If you expect the market to go up, would you move slowly into stocks? Of course not.) But you don't know what the market will do, which is the whole point of creating a mix of stocks and bonds that you can live with regardless of how the market is faring. Dollar-cost averaging just delays the length of time it takes to arrive to your target portfolio, leaving you invested too conservatively as you're getting there.

Which is why it makes more sense from an investing standpoint to go immediately to 70% stocks-30% bonds, or whatever mix of stocks and bonds you've determined is right for you. That said, if you just can't get yourself to make the move all at once, then by all means do it gradually, although the less time you take to get to your target portfolio the better.

There are always going to be times when you'll be tempted to go with your gut. When the market is shaky and it's looking like a meltdown is imminent, your instinct may be to stay away from stocks entirely or at least dial back your exposure. When the market is soaring and optimism is high, your gut may tell you to load up on stocks so as not to miss out on big gains.

When it comes to investing, however, gut instincts are notoriously unreliable. Which is why you're better off using your head to arrive at a blend of stocks and bonds that's appropriate given your goals and appetite for risk, and then sticking with that mix even if your gut says otherwise.

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