What would you do in my situation?

Before the dot com bust I had over 1/2 million in investments.

After the crash and at the low it went down to 190K.

Now, after the recovering and investing more I am almost at the 1/2 million mark plus have a new home (have 100K invested in it so far with 213K left to pay on the mortgage)

The market to me looks better now than in 2000 for sure...but I am at the crossroads on SHOULD i just let it ride and keep putting more into the market. or build up cash on the sidelines for a correction that is bound to happen OR sell everything ....pay off the home and hold cash on the sidelines.....What say you?
Additional Details
My age: 42

No matter what you do, the stock market will go up and down. If you make a mistake, you will do better next time. We always do.

Sell only those stocks that you believe have made a great profit and you have held them longer than 1 year to get the lower long term capital gains tax. Don't sell any stocks that you believe will continue to rise.

Pay off your house to save on interest expense. That will probably save you over $200,000.

Buy stock in good solid companys that you believe will grow long term, and that pay excellent dividends, to get the lower tax on dividends.

Send me a bonus for my advice! (SMILE)!

Good luck to you in all your investments.

As an investment consultant some more information is required. Whether you have a regular income beyond your investment, which seems likely, how much risk you are willing to take, what your future plans are like etc;.
Just from the information given assuming that you are looking for a steady income after retirement, it is better to invest in some retirement plan like ROTHIRA etc; which has tax advantage in old age. Since you are not worried about payment on the house you seem to be enjoying regular income for that. In such a scenario it is better to invest in a second home taking some eqiuty on the present home and renting it out which will pay for the second home. You can continue moderately with the stock market also. Now since the Fed didn't raise interest rates and oil price seems to be steadying to lower levels out look is moderate to good for stock market. Inverted yield curve need not be worry since the Fed is optimistic about it. So moderate approach not aggressive or conservative. You can put some money in stocks since you seem to be good at that, some in bonds and some cash. 40-4-40-20 basis.

Stay in the market and diversify your investments. Keep a good portion in income, some in small, mid and large cap. Look into ETFs or mutual funds to diversify. Speculate a little in some areas (e.g. REITS or Energy ETF) but keep it small part of your portfolio. Keep some in Money market to earn interest but keep a rel. stable value.

Don't buy crap-- buy quality stocks with good fundies and divies.

I wouldn't pay off the house just yet. In an emergency, you can sell some stock. You can't unload your house that easily. Your equity will not help you there- Plus, the interest is tax deductble

How do you not know this given your history with the market?

You have 1/3 of the mortgage paid off and so you won't need to worry about paying a lot of interest on the remaining 213k...depending on the interest you are paying. I'd keep investments in the stock market since there are several economic factors that favor a bullish trend, low unemployement rates, 2006 was a good year for a lot of companies with record reports on earnings, etc...so 2007 should be a good year.

Should continue to invest in the market, but the question is which stocks?

Well, based on your losses, it appears, in hindsight, as I'm sure you realize now, that you were not sufficiently diversified. You must have been heavily in NASDAQ stocks and dot.com stocks. I would take that as a lesson learned, and make sure that you understand what happened before you do anything.

The question you pose however is a question that involves market timing, i.e. is this a good time or a bad time to be in the market. The question supposes it is possible to know whether or not it's a good time to be in the market. It also supposes the problem you had before was poor market timing, and not poor diversification.

The people that answer this question (market timing questions) can be grouped into one of three categories, 1) people that don't know where the market is headed, 2) people that don't know that they don't know where the market is headed, 3) people that know they don't know where the market is headed, but need to appear to know for their jobs (i.e. investment professionals). (ok I stole this from someone else).

There has been much academic research into market timing, mostly research to check the track records of individuals who claim to be able to do it. The net of the research boils down to this, if people can do it, there sure aren't very many of them. In addition, the number of people who appear to be able (in hindsight) to time the market, is about the same you'd expect from blind chance (i.e. monkeys throwing darts).

Here's some research here:

http://www.ifa.com/Media/Images/PDF%20files/Harvey_Market_Timing_Ability.pdf

So, if you can come to realize it is not possible to effectively time the market, you're left with the same question, should you be in the market?

The answer, of course, is it depends. Basically depends on three things:

1) How long can you afford to keep your money in the market?
2) What is your tolerance for risk (meaning can you accept losses and not panic and abandon your stragegy and jerk your money all over the place)?
3) What are your financial goals?

Generally, the longer you can be in the market, and the more willing you are to have the fortitude to stick it out through the tough times without changing strategy, and assuming you need some good growth to accomplish your goals, the more of your funds should be in the market (a rule of thumb is you should subtract your age from 120 and that percent of your funds should be in the market).

You have enough money that I think it makes sense for you to attempt to really educate yourself on how the market works. The problem with this is there are thousands of "how to" books which are just so many piles of contradictions and confusion. Everyone has a different opinion. Or, you could talk to retail "investment professionals", many of whom are basically glorified salesman who majored in psychology with a 2.4 GPA, and whose knowledge of finance is based on a 6 week course about the company products. They'll want to sell you whatever the company has the best commission on regardless of your situation, often something like a variable annuity. They'll find the rationalization to sell these to anyone, regardless of their need (what's that saying, to a guy with a hammer, everything looks like a nail). Note this slur does not include Certified Financial Planners or Chartered Financial Consultants.

I have a slant on this, I suppose, like everyone else, and my slant is what I learned in school, so it is heavily based on the opinion of academia and research, mostly the work pioneered by the research done at the University of Chicago, where the most important work was done.

So, I would encourage you to read the following in order to have a stronger fundamental knowledge of investing. At the least, it will enable you to dismiss people talking about things that have been researched and dismissed as total bunk (such as market timing, technical analysis, managed stock funds, and possibly fundamental analysis).

First of all, there's a nice presentation by Index Fund Advisors, a 12 step program, which nicely shows basically what the state of the academic research is. You can see it here:

http://www.ifa.com/12steps/

Having gone through that, I recommend Burton Malkiel's book "A Random Walk Down Wall Street". This is a prolific book, a classic, which helped to establish the concept of the "efficient market hypothesis", a very important concept for you to understand (you can wikipedia.org the concept "efficient market hypothesis").

Finally, William Berstein's book "The intelligent Asset Allocator". The math can be a bit painful in this book, but if you can plod through it in the beginning, it has some very useful practical advice at the end, even if you didn't "get" all of the math. It can give you much confidence to stick to your strategy in a declining market.

If you cannot bear the reading, I'd recommend an certified financial planner that works on a fee only basis (you pay for the advice, thank them and execute the strategy yourself with the lowest cost index funds you can find, say from Vanguard or another low cost fund manager). Commissioned based advisors tend to advise, unsurprisingly, high fee investments (that pay the best commission, buy kill your returns).

Good luck.

You need to learn how to invest.
Don't be ofended but you need to practice a bit.

First you need the "big picture", how the economy is going.

Next you need to track down indexes, or index ETFs, learn some technical analysis. There you must decide what kind of investor you want to be, buy and hold, long term (several months), swing trading (my personal favorite) and adjust your technical indicators according to your time frame.

I would say you sell the dotcom investments and buy the SPY ETF that imitates the S&P 500 index.

Learn to master it. Remember you don't hold or worse yet buy when indexes are going down, if you had knew this you would have sold proptly when market went down.

Right now the indexes are going slightly up and this year (2007)is unlikely that the S&P loses money, but keep an eye on this

Great question! There is one thing people often forget when talking about things like this and that is your risk tolerance. It is understandably low considering what you have gone through over the past number of years. You have to be able to sleep at night and not worry about your portfolio. This will dictate a conservative approach with a higher percentage in bonds and cash-like securities.

There is more to it though and you have enough investable assets to get yourself a good financial planner. Go to Ameritrade or Schwab and have them refer you to one of the local advisors they work with. Its free and you will get a lot of info. If you go with one they charge about 1% to work with you which is less than most Mutual fund charges (and tax deductible)!!

Paying off your mortgage is not going to be the answer. Most likely even with a conservative portfolio you will outperform your mortgage interest rate - especially after deducting the interest.

I sympathise with you. I too have gotten burn but not as much. But right now, I have divided some of my money and put it in the highest-dividend yielding stocks.

You may want to research them on Morningstar.

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