Don't be going crazy over warnings from analysts about trends

Your Funds

Your Money

May 22, 2007|By Charles Jaffe | Charles Jaffe,MarketWatch

With the market reaching new highs but consumer confidence sitting in the weeds, it's no surprise that investors have questions. Here are a few of them that have recently been addressed to me:

I was listening to Public Broadcasting's Nightly Business Report and one of the financial experts being interviewed said stay away from financial stocks. My problem is that I own Selected American Shares fund. It has experienced managers but holds about 40 percent of its assets in financial stocks. With a slowing economy, how will this fund be affected? Should I reduce my holdings in it?

- Michael S., in Omaha, Neb.

With any fund that has a reasonable track record, the decision to back away from a fund depends mostly on the reasons you were attracted to it in the first place.

Most fund investors are looking for top-flight managers with proven strategies, and an investment philosophy they can relate to, in an asset class where they need coverage. Selected American Shares delivers the management, style and track record.

One advantage that fund manager Christopher Davis has is the ability to go anywhere. He can change the direction of the fund based on whatever opportunities he sees. Financial services, right now, is a place that some analysts hate, thanks to problems in the subprime lending business, slowing in the real estate market, concerns over the economy and more.

If you trust Davis and believe in the fund, stay put. If you think the fund has gone too far afield - or if its holdings clash with others in your portfolio - consider making a change. But don't go crazy over what any analyst or market observer says. If you weren't trying to time the market when you bought the fund, don't let a timing decision get you out of it now.

I recently started working with a financial planner, and she is trying to get me to move my current funds into new ones. Does this make sense?

- Virginia, in West Palm Beach, Fla.

It depends on the reasons why the change is being recommended, and whether the new funds are better than the old ones, as well as whether you will incur any tax burdens or sales charges by making the change.

If the adviser is suggesting you move money into funds that have sales charges, the change is being made so that she can get paid. While a financial planner deserves a fair wage for her efforts, moving money for the sake of generating a commission is a bad idea. Obviously, if the new funds have a markedly better track record, if the adviser has inspired your confidence, and if the change can be made without taking a big tax hit, go for it.

But if you are reasonably happy with the funds you have and would get slaughtered on the tax and/or commission front, discuss with the adviser the idea of simply putting new investments into the suggested funds and shifting your portfolio over time.

The stock market makes me very nervous. I had some stocks, but I sold them and moved into CDs. What kind of fund can I buy and when should I buy it?

- Ilene in Memphis, Tenn.

If the market made you nervous as the Dow Jones industrial average, the Russell 1000, Russell 2000 and Russell 3000 were all reaching record highs, there may not be a "right time" to buy a mutual fund.

If you are going to try owning stocks again and want to go with funds, consider owning an index fund - under one key condition, namely that you would forecast the long-term future of the stock market as being "up" and that you could buy a fund and sit tight and hold it long enough to match that "up" prediction. The one key advantage that index funds have for nervous investors is that at least you'll be sure to get the market's return; the one drawback is that you're strapping yourself to the roller coaster, so any time the market loses money, you'll be down, too.

jaffe@marketwatch.com

Charles Jaffe is senior columnist for MarketWatch. His postal address is Box 70, Cohasset, MA 02025-0070.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.