Very thing that writer has described has happened [ast 6 weeks and will happen more..
Look at the transports,,financials and pharms,,,
Here is an article ,, that bridges my thoughts,,some where between a bear and a bull...
Overview: A Compass for Those Choppy Seas
By ROBERT D. HERSHEY Jr.
In reaching stomach-churning, sleep-depriving levels last week, the gyrations of the stock market seemed to restore meaning to an old Wall Street maxim: to invest is to chose between eating well or sleeping well.
Some investors, their dreams disturbed, headed for the sidelines. Some, accustomed to filets and refusing to concede that the bull had snorted its last, rushed in to buy on what they hoped was Monday's 512-point "dip."
Most investors, with varying degrees of concern and confusion, probably did nothing, amid gathering worry that a healthy market correction might be turning into the first bear market in 25 years and that global economic problems could tip the American economy into recession.
As maxims go, it's hard to beat "first do no harm." But paralysis in the face of change is another thing entirely. Whatever your personal circumstances and the condition of your portfolio, financial experts say there are a number of steps that every smart household should at least consider in today's highly unsettled -- and sobering -- environment.
Turn Asset Allocation on Its Head
As the market boomed, brokers and other advisers kept cautioning that particular stocks or industries -- perhaps computers or cyberspace -- inevitably would prosper more than others, leaving investors' portfolios overweighted in those areas.
More broadly, with stocks bounding upward at more than 20 percent a year, investors who did nothing but watch could quickly find themselves more heavily into equities than they had intended. The remedy, readily dispensed, was to pare back such positions, reinvesting elsewhere to maintain a sensible degree of diversification.
Now, after a downdraft, the opposite may apply. If too (italics)small(end italics) a proportion of your portfolio's value is committed to an area you still favor, the right move would be to bulk up. As Brian Grodman, a financial planner in Manchester, N.H., put it: "This is the time to buy that Dell Computer. It's pure common sense."
Purchasing shares still selling at 52 times its anticipated earnings may not seem sensible to every investor, of course. But if your horizon is long term, your sleep sound and your portfolio skewed by the market's retreat, you might want to raise your exposure to stocks in general.
Abby Joseph Cohen, the indomitably bullish strategist at Goldman, Sachs & Co., increased her recommended stock allotment to 72 percent of assets from 65 percent last week, at the expense of cash and commodities.
Continuing to buy a favored stock as it declines -- when it's "on sale," to an optimist's eye -- is a form of dollar-cost averaging, one of the more sound of investment strategies.
By putting a specified sum of money into a stock at regular intervals, you get more shares for your money when prices are down. And for any given period, your average cost per share is lower than the stock's average price.
For the strategy to work, however, the company must be strong enough to ultimately prosper -- and you must be disciplined enough to persist at times like these when it may seem dicey to buck the market crowd.
Put Your Cash to Better Use
The sleeping-versus-eating test may send many investors in search of the safest havens, rather than in pursuit of reasons for buying more shares. And though Russians may have been driven lately to stash even more money under the mattress, Americans have numerous alternatives if fear or prudence dictates keeping more of their savings in cash.
The choices are different enough to be meaningful even for relatively modest sums -- and of real significance when parking, say, tens of thousands of dollars that you've pulled pulled out of stocks.
Treasury bills -- government ious sold at a discount and redeemed at face value at maturities that range up to a year -- are for the belt-and-suspenders crowd who insist on maximum safety and who will accept lower yields for this to avoid state and local income tax on interest. The return on the one-year bill was 4.875 percent on Wednesday.
Interest rates are a bit higher -- about 5 percent for two years and five years -- on longer-term Treasury securities. But if you don't expect to hold these until maturity, be prepared for market prices to jump around: If you sell, you might get less than you paid.
Bond funds, including those that hold corporate issues, are another possibility. Shorter-term funds yield lower returns but are much less volatile. Whatever the length of the portfolio, experts caution against buying bond funds on the basis of advertised historical performance instead of current yields. You also need to be alert to sales, management and redemption fees, which can slash the return.
Bond funds with ultra-short-term holdings can offer higher returns than money market funds with similar liquidity but costs are typically higher, too. For many people, the best place for stashing cash is likely a money market fund. These combine the convenience of a checking account with near-perfect liquidity and returns double or more those paid on savings accounts. Unlike money market accounts at banks, however, money funds are not insured.
"It's the ultimate in flexibility," said Bruce R. Bent, president of the Reserve Funds, a mutual fund company based in Manhattan. Bent and a partner devised the money market fund in the early 1970s, creating what is now a $1.3 trillion industry.
Rates are averaging about 4.75 percent and, unlike bank certificates of deposit, you don't have to lock up your money for a set period.
While there is little to distinguish most money funds, there are some with high minimum balances or other restrictions, such as limiting the number of checks that can be written against your account. And note that, unless you're paying income taxes at the highest rate -- currently 39.6 percent -- you will almost certainly do better with a money fund invested in taxable short-term securities than in tax-exempt municipals.
"The vast majority of people would be better served by putting their money into taxable funds," said Bent, whose firm offers both kinds.
Take Money Where You Can Find It
When the economy and the stock market were both barreling ahead, some people got a bit carried away -- like those who thought it reasonable to carry credit card balances with 18 percent interest rates when they could make a more or less "assured" 30 percent a year by keeping that money in the stock market.
Now the odds have clearly shifted, said Gerri Detweiler, education adviser to Debt Counselors of America, an educational group whose sponsors include lenders, in Rockville, Md. "The stock market is a risky place, while paying off your credit card is a guaranteed high-return, tax-free proposition," she said.
That is especially true if you select the card wisely. Ms. Detweiler recommends searching out one with a fixed, moderate rate and ignoring those splashy offers of cards with low teaser rates that jump after six months or a year to the high teens.
Even then, she says, make it a habit to pay your balance each month -- and pay on time, she added, thereby avoiding card issuers' growing practice of imposing fees as high as $29 for being just a couple of days late with a payment, no matter how little you owe.
There are other easy ways to trim debts and lower interest payments if you've grown less sanguine about the performance of your investments. For instance, making extra payments on your mortgage can sharply reduce your interest payments over time, effectively putting money in your pocket.
"The roof over your head is substantially more secure than investing in the stock market," said Marc Eisenson, co-author of the new book "Invest in Yourself: Six Secrets to a Rich Life" (John Wiley & Sons, 1998, $22.95)
The secrets are: Make your own life style decisions. Put your family first. Where ever you work, be in business for yourself. Make the most of the money you bring home. Turn your debts into golden investment opportunities. Map out your own financial future.
Refinancing your mortgage is another possibility, though mortgage interest rates hovering above 7 percent have not fallen as sharply as might be expected, given the tumbling yields on government bonds. One of the overarching principles here, of course, is that any cost-cutting is more valuable than it appears since, with state and federal taxes, a dollar saved is worth as much as $1.50 earned.
Another principle is to take money where you can find it. Even if you are worried about the market's trajectory, for instance, it's hard to make a case against accepting the company match on your contributions to a 401(k) plan or other savings programs.
"It is very important to continue to fund these plans," said Grodman, the New Hampshire financial planner. Despite the current unease, people should remember, he said, that "this is just one week or one month in the time horizon of their investment life."
Make Your Job a Better Investment
Have a lot of faith in your company's prospects, even though the stock has been beaten down? Maybe it's time to talk to the boss about the makeup of your pay package.
Not everyone has the necessary clout. But some people whose compensation includes stock or options might, in light of lower share prices, succeed in arguing for an earlier or larger grant. Or they might ask to renegotiate their package: instead of $300,000 in cash, the arrangement could be $200,000 in cash plus some form of stock.
That, of course, is not the career move of someone with a weak stomach. Benefits consultants expect that employers, anticipating queasiness to prevail among their staffs, may move in the opposite direction.
"Companies may start to look at performance-based cash plans," said Donald L. Lowman, managing director for compensation at Towers Perrin, the management consulting firm. In other words, old-fashioned bonuses could supplant stock-based incentive plans if the markets continue to slide.
This might also be a moment to reassess the broad range of priorities in your life, some of which may have been shoved aside in fin de siecle careerism and obsession with money. The stock market's tumble could force a realization that there's more to life than our work and its material rewards.
To Eisenson and his co-authors, the idea is to find your own balance of investments, "a portfolio not just of stocks and bonds but one that includes investments in yourself and in your family."
But this could prove an overly abrupt adjustment of outlook for most people to make; after all, their job is their chief economic asset. So even though the unemployment rate is at its lowest ebb since the Nixon administration, some are bound to conclude that it wouldn't hurt to make an extra effort at the office.
Or, perhaps, to think about some sideline work in case a weakening economy brings renewed bouts of corporate downsizing.
Mine the Rubble for Gold
Although every experienced investor knows that markets nearly always overreact, only a minority find the nerve to search out -- and actually buy -- the inevitable bargains. But sooner or later solid stocks that have been indiscriminately tossed aside will be uncovered, often by those value-oriented investors who concentrate their hunt on a group that has been most thoroughly trashed.
"I look for an asset class that's way down," said Cynthia Meyers, a financial planner in Sacramento, Calif., -- so long as it is something that fits the risk tolerance. One question she raises with clients these days is "could they stomach the gyrations of technology stocks?"
Companies like Microsoft might qualify as would companies in other industries, like makers of farm equipment and other heavy machinery. Still other investors tend to shop for companies whose stocks have more or less held up, like regional banks, figuring they may take off when the market steadies.
There is even value in losing money, especially painful as this may be when the stock in question is one that very recently allowed you to gloat over handsome paper profits.
Losses, provided they are actually realized, can minimize your taxes by offsetting profits from the sale of other assets. You can even create such a loss without giving up on what you still think is a good idea by switching from, say, Exxon to Mobil, or from one growth mutual fund to a similar one.
And if you're interested in passing on assets to children without subjecting the transfer to the gift tax, a drop in stock price means you can give them more shares before you and your spouse reach your $20,000 a child annual limit.
In these iffy days, though, it may be that the single smartest thing to do is make a basic adjustment in thinking -- and then to act accordingly.
"There's been a kind of greedy attitude, a naive assumption that we can invest in anything and it will go up," Ms. Meyers said. "It's good now that clients do see that downs come with the ups."
Sunday, September 6, 1998
Copyright 1998 The New York Times |
