Timoteo <<off and on topic>> - hello, I just ran the hartford marathon, caught a cold just before so I only ran a 3:29, should have been between 3:05 - 3:10. Taking a break from running for 3 weeks now.
This article from the wall street journal today suggests that investors may seek to sell some of the more volatile tech stocks:
Investors Should Examine
Their Portfolios for Risk
By LYNN ASINOF and KAREN HUBE
Staff Reporters of THE WALL STREET JOURNAL
Boo!
The stock market's pre-Halloween fright
ride has given many investors a lot to think
about. "It was a reminder that things can get
scary," says Judith W. Lau, a Wilmington,
Del., investment adviser. Until such jolts, most investors "never give a lot
of credence to wild cards and the impact they can have on us and our
money."
True, lots of individual investors watched Monday's 554.26-point, or
7.18%, drop in the Dow Jones Industrial Average with relative calm, and
quite a number of people even rushed to take advantage of what they saw
as bargain-basement prices. But volatility continues to haunt the market, as
Thursday's 125-point loss showed again. There isn't any guarantee that
prices couldn't plummet again.
In fact, it is that very risk that draws investors to the stock market, says
John Markese, president of the American Association of Individual
Investors, Chicago. "That's why they're getting the rates of return they are"
in stocks, he explains. "It's because they are willing to bear this sort of
short-term volatility."
Basic Restructuring
Investors who were spooked by this week's market gyrations may want to
take a closer look at their portfolios. They may have too much risk built
into their current investments. Doing some basic restructuring may let them
sleep better the next time stocks take a plunge.
If that's the case, says Mr. Markese, you need to scale back to the point
that a 10% correction in the stock market isn't going to cause any real
change in your lifestyle. Monday's plunge brought the cumulative loss in the
Dow industrials in four consecutive days of selling to 11.2%; as of last
night, the Dow was still down more than 10% from the high point of the
seven-year bull market in early August.
Risk can come from several directions. Some people put too much money
into stocks, forgetting that they need some fixed-income investments such
as bonds to offset stock-market bumps. Others invest money that they will
need in the next five years, ignoring the fact that a market downturn could
leave them short of funds. Still others invest heavily in a specific market
segment -- high tech, for example -- but ignore other types of stocks that
could soften a rout in that one segment.
Ignoring Advice
Marilyn Fitch of Columbus, Ohio, was one of those who found she had no
stomach for wild stock-market rides. New to the market last year,
53-year-old Ms. Fitch ignored her adviser's recommendations and put
22% of her portfolio into foreign stocks, including a Latin American fund.
On Monday, Ms. Fitch was ready to sell everything and move to cash.
After plenty of hand-holding, adviser Michael Chasnoff of Cincinnati
persuaded her to stay put. But as soon as the market settles down, she
plans to reallocate her portfolio. Her new mix will be typical for people
with moderate risk tolerance -- 60% in stocks and 40% in bonds and
cash, with only a 10%-15% exposure to foreign markets.
Ms. Fitch was far from alone. Many of those who had followed investment
whims rather than sticking to a carefully plotted plan saw firsthand
Monday the downside to such an approach. The fun of buying stocks in a
hot sector quickly turned to pain for many who hadn't balanced their
portfolios.
"It takes a lot of discipline not to always do what you like, but to do what
makes sense," says Carol V. Berman, a Cambridge, Mass., investment
adviser.
Looking at Goals
Indeed, what makes sense now is getting back to the basics. In the
aftermath of the week's gyrations, take a fresh look at your investment
goals. Figure out how much money you will need for the kids' college
education, the new summer house or your retirement in 20 years.
With each goal, the time horizon is likely to be different. And because of
that, the amount of risk you can take comfortably is likely to be different,
too.
Funds that will be needed in less than five years should start coming out of
the market now. Add to that enough cash to cover at least six months of
everyday expenses. Park that money someplace where you know you can
get it -- short-term bonds that mature when the tuition bills start arriving,
Treasury bills or even a money-market fund.
Then take a look at your holdings. You may find that your portfolio held
up quite well. But if not, you may want to shift funds, either moving some
money to less-volatile investments or simply changing the mix among your
existing holdings.
Seeking a Cushion
Stock-index mutual funds, for example, are hard to beat in a bull market.
But in a down market, individual mutual-fund managers may be able to
pick stocks that provide more of a cushion than the index-based funds.
Ms. Berman advocates doing "a little bit of both," saying it's a good way to
diversify.
When looking for greater safety, don't simply flee toward cash.
Certificates of deposit, for example, seem safe because investors know
exactly how much money they will get when the CDs mature. But the rate
of return may not even keep up with inflation if interest rates start to rise.
"People confuse safety with certainty," says Coral Gables, Fla., investment
adviser Harold Evensky. "CDs are certain, not necessarily safe. Safe
investing is investing in different areas of the economy that are subject to
different kinds of risk."
If you decide that your mix really isn't working, don't rush to make sales
this week. Take the time to work through the tax consequences of any big
portfolio changes, and don't forget to figure in brokerage fees, fund sales
charges and other costs.
"The first place people should cut back in equities is in their tax-sheltered
accounts, such as 401(k)s, 403(b)s and IRAs," says Gary Schatsky, a
New York financial adviser and attorney. "That way, they can avoid
transaction costs and capital-gains taxes."
Equally important, says Mr. Chasnoff, the Cincinnati adviser, is to wait
until the market settles down. "You don't want to take a loss or let your
emotions play into your decisions."
That can be hard to do when the market takes a big hit and you are being
deluged by information on the radio, television and even the Internet. "It is
almost a case of data poisoning," says Ms. Lau, the Wilmington adviser.
That's why having a plan is so important, she says. Not only should you
have a well-thought-out asset allocation and a diversified portfolio, but
also an understanding of such basics as when to buy and when to sell.
One reason for buying, she says, might be to boost ownership of a
particular asset class, such as high-tech or real estate. Selling can make
sense if you are rebalancing your portfolio, if your mutual fund changes
managers or investment styles, or if your fund's performance is consistently
below others in its category.
But by itself, a 500-point drop in the market isn't a good reason, says
Karen Spero, a Cleveland investment adviser. Even if you are planning to
retire next year, that assumption should be already built into your portfolio.
"If everything else remains the same as it was, there isn't any reason to
change your investment structure," she says. |
