RESIST URGE TO TWEAK PORTFOLIO, PLANNERS SAY.
Investors might get itchy fingers watching the market plunge 512 points in the Dow Jones industrial average Monday.
As in, itching to call their broker or mutual fund company to sell their stocks. But don't do anything rash, financial planners say. Stay cool and keep your perspective. Remember that bear markets are part of the stock market cycle.
If one is properly allocated among different assets - say stocks, bonds, cash - the best action might be to take no action at all.
Here are words of advice on navigating choppy financial waters from some of America's top financial planners, as ranked by Worth magazine:
Tip No. 1: Re-examine your financial goals. Your investments should be divided into money you'll need for the long term, such as for retirement; shorter-term investments that you'll need to cash out within five years, such as paying for a 16-year-old son's college education; and savings for daily and emergency expenses.
Don't touch long-term investments since their lengthy time frame will allow you to ride out the ups and downs of the market, said Cynthia Meyers, a certified financial planner in Sacramento.
Money needed in the short term should not have been invested in stocks, but if it is, consider moving it to a less volatile investment such as money market mutual funds or intermediate-term (five- to 10-year) U.S. Treasury bonds. Many mutual fund companies offer money market funds and bond funds.
Some bond funds favored by Richard Moran, a certified financial planner in Torrance, include two no-load funds from Vanguard: The Intermediate-Term U.S. Treasury Portfolio and the California Tax-Free Fund Insured Intermediate-Term Portfolio.
If your goals haven't changed and your investments remain on track in helping you achieve those goals, then stay put.
Tip No. 2: Make sure your investments are allocated well. A good allocation that balances risk and reward is 65 percent stocks (divided among large, mid- and small-cap stocks and real estate investment trusts), 30 percent fixed income securities such as short-term (three to five years) to intermediate-term government bonds, and 5 percent cash, said John Thomas Blankinship, a certified financial planner in Del Mar, Calif.
There's a case to be made for asset allocation. Consider the five-year period ending December 1932, the worst bear market this century. An investor who put his or her money entirely in large-cap stocks would have suffered an average loss of 12.5 percent per year, according to Ibbotson Associates, a financial markets research firm in Chicago. If the investor put 60 percent of the money into large stocks and the rest in bonds, the loss would be 4.38 percent a year.
Tip No. 3: Don't try to time the market. If you do have to cash out - folks who need the money from their stock investments within five years - don't try to time the market. Instead, have a consistent plan of withdrawal, as you would for investment. Move the money into money market accounts in three or four chunks, said Laura Tarbox, a certified financial planner in Newport Beach.
But it's OK to watch for short, upward spikes in the market before selling your stocks, said Glenn Woody, a certified financial planner in Costa Mesa.
When a market goes up or down, it doesn't take a straight path. Generally, it goes up a day and down another day. In a bull market, the overall trend is up and the opposite is true for a bear market. Watch for those upward spikes.
Investing also should take the same disciplined path, with regular investments every pay period, month or quarter. That way, investors won't always buy at the high nor at the low. It all averages out.
Tip No. 4: Shop for bargains. Finally, take the opportunity to buy a favorite stock at rock-bottom prices. ``We're seeing values in the market now that we haven't seen in years,'' said Blankinship.
It's important to put together a game plan for buying stocks so you will avoid buying emotionally, reacting to the pressure of the moment, Moran said.
``Experienced investors welcome volatility because it presents opportunity,'' he said.
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||Sep 1, 1998|
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