Sound advice for when the market goes bonkers

The Ticker


TWO DAYS AFTER the fourth-biggest drop in the history of the Dow Jones industrial average, and the day after the Dow gyrated wildly, here is some good advice, from my uncle, Irvin Westheimer, a highly successful stockbroker who died about 15 years ago at age 102.

He told me when I interviewed him on his 100th birthday, "Julius, just tell your readers to build and hold onto a portfolio of high quality stocks that every headline or news bulletin doesn't buffet."

STAYING OUT? And in that regard, here are a few events from "60 Reasons People Did NOT Invest in the Stock Market, 1934-1995": "1930s Depression, war in Europe, Pearl Harbor, Dow tops 200 ('market too high'), Eisenhower heart attack, President Kennedy assassinated, Vietnam war escalates, Watergate crisis, worst recession in 40 years (1982), Dow nears 2,000 ('market too high'), savings and loan crisis, Persian Gulf war, Whitewater, etc."

BUT GET THIS: $10,000 invested in the S&P 500-stock index in January 1934 -- despite all those and other crises -- would be worth more than $6.6 million today!

WORTH A MILLION?: Want to become a millionaire? Here are appetizing figures from Your Money magazine, June-July:

"If you invest just $2.78 per week in an index fund or a diversified portfolio of common stocks and earn an average of 10.5 percent per year -- which is the long-term average return generated by the stock market since 1926 -- our nest egg will exceed $1 million in 65 years.

"In other words, an investment of as little as $145 per year in stocks through recessions, wars, inflation, deflation, bull and bear markets, unfriendly administrations (just to mention some of the 'reasons' people find not to invest), could enable your child or grandchild to face retirement years much more comfortably."

NO GUARANTEES: Regarding the above, a warning: There's no guarantee the stock market's average return in the next 65 years will equal that of the past six or seven decades.

Also, the annual return must be earned after taxes or in a tax-deferred account.

BAD & GOOD: "How to Avoid Bad Money Advice" in a recent Woman's Day article gives examples of advice to stay away from -- and better counsel to take. Examples of each, the bad first:

"You can't afford to work -- child care, commuting, clothes, taxes, etc." Better advice: "On the contrary, most jobs provide a rising income, valuable benefits (low-cost health insurance, retirement plans, etc.) and a second income does not cause higher taxes on your spouse's income.

"Bad Advice: Carry a balance on lots of credit cards because that makes you a better credit risk. Good advice: That's not true; a card you don't use does you no good because creditors have nothing to evaluate. Keep only one or two cards, pay them off. You'll be more attractive to creditors."

WHERE TO BORROW: "Consider a home equity loan if you need more money for just a few years. For example, to pay a child's college tuition or if your mortgage is at such an unusually low interest rate that refinancing to get more cash would cost as much as taking out a home equity loan.

"For longer-term loans, it usually makes more sense to simply refinance your mortgage for a larger amount." ("Investing for Dummies," by Eric Tyson, $19.99.)

SAD NOTE: "For Americans in their 70s and 80s, Social Security could turn out to be the best investment they ever made. But those now under 60 won't be so lucky.

"They've paid higher payroll taxes and are retiring with full benefits at a later age, so they're likely to get back less than they and their employers paid into the system, after inflation." (Kiplinger's Magazine, July.)

JULY JOURNAL: "Companies that start paying dividends outperform the market by more than 20 percent in the following three years." (Smart Money, July.)

"Everyone should keep a diary in which he or she records the details of all tax-deductible expenses at or near the time expenses were incurred. Include business travel, medical, entertainment, etc., expenses." (Tax Hotline, July.)

"In the workplace, don't let fears of 'age bias' hold you back. Remember that you have talent and experience to offer." (Money, July.)

"On Wall Street, people who know don't talk and people who talk don't know." (Frederick Rowe Jr., hedge fund manager.)

Pub Date: 7/17/96

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