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How to Invest When the Market's Soaring

Dan Caplinger
February 24, 2012

Investors hate it when stocks fall. But at times like this, when the stock market seems to be moving up in nearly a straight line, you may find it even more challenging to make smart investing decisions.

Later in this article, I'll reveal some tips on putting your money to work even when stock prices are soaring. But first, let's take a look at just how big a move we've already seen.

Raging bull
Most investors are aware of the strong start that 2012 has had. But what they may not have noticed is just how smooth a ride up it has been. The S&P 500 hasn't had a drop of 1% or more since Dec. 28, punishing investors who'd gotten used to the "buy on dips" mentality that served them so well in late 2011.

At the same time, many investments have had far more dramatic up-moves than the 9% gain in the S&P since late December. iShares Silver Trust (NYSE: SLV  ) is up more than 27%, for example, as precious metals have bounced sharply from their year-end lows after the combination of Greek worries and continuing low interest rates helped reverse a late-year correction that sent prices to their lowest levels in 2011. Similarly, emerging-market ETFs have soared, with Market Vectors Russia (NYSE: RSX  ) and iShares MSCI Brazil (NYSE: EWZ  ) among the top performers, with roughly 20% gains. Investment analyst Bespoke points out that 94% of ETFs are trading above their 50-day moving averages, suggesting that the markets may have come too far too fast.

Put those two trends together and you end up with a conundrum. We've all been well-conditioned not to chase rising markets, as the threat of buying high and selling low is a big disincentive toward putting money to work. Yet as markets churn ever higher, the fear of missing out on an even bigger bull market is a constant temptation to go ahead and invest. So which impulse is right -- and what's the best way to act on it?

2 things you can do now
As in any investing environment, it's important to take emotions out of the picture when you're thinking about how to handle a raging bull market. The emotions involved are far different from those experienced during a market crash, but they can be just as destructive in taking you away from your long-term investing plan.

Rather than making abrupt moves, I try to do two things w