Don't let market swings get to you the wise investor stays the course

The Outlook

July 21, 1996|By Bill Atkinson and Suzanne Wooton DTC

WALL STREET has had its up and downs, but last week was a humdinger. In past times the tumult on Wall Street affected relatively few Americans, but now, with the explosion of mutual funds and 401(k) retirement plans, two-thirds of Americans have money invested in the market.

What steps should they take to protect their investments?

Should they shift money out of, say, aggressive investments to safer harbors? Should they bail out altogether?

Lyle Benson

Certified public accountant and financial planner, L. K. Benson and Co., Towson

People have to make a determination about what portion of their assets, and which assets, should be in stocks. Anything they put into stocks has to be for five years or longer. Historically, the stock market loses money one out of every three years, and it's going to have ups and downs. So anything in the stock market has to be long term. I would not make a change because of what happened in the market [last week].

A lot of people are used to stocks going up. They haven't lived through 1973 and 1974, the last real bear market when stocks lost 30 or 40 percent in two years. You have to step back and look at the real long-term picture. Over the last 70 years, stocks have averaged 10 percent a year, compared to 5 1/2 to 6 percent a year for bonds. It's important to compare that to inflation, which has averaged 3 percent a year. People want to have returns that are better than the inflation rate.

Investors need to have a portion of their investments in the stock market over the long term. How much depends on how much risk they're willing to tolerate and whether they can look at it over the long run. You don't want to have money tied up in stocks that you need to get to in the next two or three years. Age is also a factor. Someone in their 20s and 30s clearly can afford to weather the ups and downs better over the next three or four years than someone in their 60s.

Tony Ristaino

Director with Financial Planning and Management Center Inc., Towson

Investors have been spoiled over the past 10 years. I think their expectations may be too high. But, having said that, I think last week's decline was caused primarily by Hewlett-Packard and Motorola going down. For long-term investors, I would view this time as a buying opportunity. If the market goes down 10 percent from its high this year, I would view it as a buying opportunity. If people are investing in 401(k) or pension plans, where a certain amount is coming out of paycheck every month, they shouldn't worry about it.

If you need college tuition on Aug. 30, it might be a different story, but for long-term investing, I would continue buying. Diversification is still a basic strategy and that fact has actually been heightened by the beating that technology stocks have been taking.

The real danger is getting whipsawed by putting money in stock market, then selling after stocks lose and putting the money somewhere with a 3 percent return.

Robert F. Mewshaw

L Investment counselor, Van Sant and Mewshaw Inc., Lutherville

Whenever you have this kind of uncertainty and volatility in the markets, there is a major shift taking place. Something is going on here that is not normal and we are suggesting that when you don't know what is going on in the market, then you should take some money off the table and step back. That is what we are advising right now, but not panicking and selling all of your assets. I can't see the future, but there are uncertainties. The best thing to do is retreat and plan a new strategy.

We have been in a bull market for the last five years and we've ridden that bull market. When you have uncertainty, it clouds your decision-making. To be safe, take 10 percent of your money or 20 percent of your money off the table. I'd put it right in the money market fund.

When the Dow is at 5,700, everybody swears they are a long-term investor. As soon as this thing breaks and falls 5 percent, they want that 1 (800) GET-ME-OUT number. They say: "Hey, Mr. Wizard, I don't want to be in that stock market anymore."

Peg Downey

CFP, Money Plans, Silver Spring

Volatility is not a problem for the long-term investor. It should be welcomed because it means your dividends will be reinvested at lower prices.

Even if someone is in their 60s, more than likely they have a 25- to 30-year time horizon for that money. You don't have to tell those people anything any different. I just whip out the actuarial table.

We have a mailman who brings the mail to the office and he asks about the market every day because he moves his investments around every day. I don't recommend that.

I just think people should take the time to plan an appropriate asset mix. People spend way more time planning their vacations than they plan their investments.

Pub Date: 7/21/96

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