Market correction looms, but holding course advised

Andrew Leckey

August 06, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Too much of a good thing?

Record stock market levels make investors smile, but that broad grin often changes quickly to tightly pursed lips. What goes up, they fret, inevitably will come down again.

This year, everyone's braced for a market correction. High prices of stocks combined with a quirky economic backdrop seem to predict its occurrence sooner or later. The only question is how dramatic it will be.

The fact is, market corrections do occur; they're natural and healthy, and a rebound eventually follows.

Holding the course long term is the logical strategy. But try to tell that to a nervous investor if you're the one directing his or her money.

I asked several financial planners how they gauge this lofty market and what they're advising clients.

* Martin Jaffe, president-elect of the International Association for Financial Planning and chief operating officer of New York-based Wood, Struthers & Winthrop Management:

"With the market at a high level, the investor will be most comfortable investing in dominant companies that can weather any economic problems.

"I expect the historic stock rate of return this year of about 10 percent, and investor expectations must be reduced from the late 1980s and early 1990s. My clients, depending on their goals, have 40 to 70 percent of portfolios in stocks, the remainder in bonds with average maturity of five to seven years.

"I like Gillette Co., which has international growth, and Freddie Mac (Federal Home Loan Mortgage Corp.), boosted by the large volume of mortgages and refinancings. In international stocks trading as American depository receipts, I recommend British liquor-maker Guinness and cellular phone company Vodafone."

* Peggy Ruhlin, principal in the Budros & Ruhlin financial planning and investment firm in Columbus, Ohio:

"We're trying to prepare clients for the inevitable stock market correction that will likely occur this year. After the October 1987 crash, only three of our 185 clients even phoned us, and only one pulled his money out of the market.

"Our younger clients have as much as 80 percent of portfolio in stocks and 20 percent in fixed income, while many others are 50-50. Ability to handle risk is key.

"My favorite no-load (no initial sales charge) international stock funds are Harbor International, Toledo, Ohio; T. Rowe Price International Stock Fund, Baltimore; and Scudder International Fund, Boston. I like small-capitalization funds (also no-load) such as Evergreen Limited Market Fund, Purchase, N.Y.; Meridian Fund, Larkspur, Ohio; and Dreyfus New Leaders Fund, Uniondale, N.Y. My only stock recommendation is Berkshire Hathaway, selling at around $16,000 a share, sort of a mini-mutual fund run by Warren Buffett."

* Katherine Triolo, partner with the Financial Management Team, Appleton, Wis.:

"When the market's high, systematic investing works best. Over the past 10 years, equity funds returned 13 to 17 percent annually, but we're now counseling people to expect a 9 to 10 percent return. After all, rates on certificates of deposit are down in the 3 percent range and bonds in the 6 to 7 percent range.

"We've put clients in Mylan Labs, which focuses on geriatric drugs. I recommend three mutual funds of Los Angeles-based American Funds (all with 5.75 percent loads), namely Investment Company of America, and internationally, New Perspective Fund and EuroPacific Growth Fund."

* Terry Gaertner, president of Chicago Financial Advisors:

"There'll be a correction over the next six to 12 months, but the market is still the place to be for anyone investing long term. We're not shying away. I recommend a dollar-cost-averaging approach (investing a set amount on a regular basis).

"A 30-year-old client would have 50 percent in stocks, 15 percent international stock mutual funds and 35 percent fixed income. A 50-year-old would have a bit more in fixed income. We're staying away from oil and gas, venture capital, commodities and limited partnership deals.

"I like Govett International Emerging Markets Fund (4.95 percent load), San Francisco, for the aggressive. With investment horizon of 10 years, I like variable annuities such as American Legacy II, Los Angeles, and Lincoln National Life, Fort Wayne, Ind."

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