The worldwide economic collapse of the past year may have left some local investors shell-shocked and wondering what their next move, if any, should be, but experts from across the region are suggesting now might be the ideal time to invest, as long as one considers all their available options.
While the media over the past year has been full of gloomy stories about the state of the world economy, some local investment experts have already seen signs of a potential recovery. Whether that recovery results in an economic turnaround may depend at least somewhat on whether individual investors begin putting their money back into play.
“People who have been sitting on cash since the bottom in March are still on the sidelines,” says registered investment advisor Beth Jones. “I’m poking and prodding them to get that money back in the market because things are still fairly reasonably priced, and they’re missing the boat. Some people have been moving that money back into the market, and that’s one of the reasons the market is starting to rebound.”
Jones is co-owner of Red Hook-based Third Eye Associates, a “life and wealth management” firm with offices in New York and Washington, DC.
“The markets always move first, so they go down first and come up first,” says Jones. “We’re not pessimistic, but it’s not clear if this bounce we’ve seen in the stock market over the last few months is a permanent situation. I think it’s going to be moving up and down for a while longer. Those boom years, where your house is going up 10 to 15 percent a year are over, as least in my lifetime.”
The Long Term
Robert Baker, assistant vice president and financial services officer with Ulster Savings Bank, agrees. “If you’re investing for the long haul, the best idea is not to panic,” Baker says. “The market is having a good upturn right now, so it’s a good time to invest.”
According to Jones, the best time to invest is often when the market is on the rebound. The real difficulty comes in convincing those who are timid to believe it.
“It does make sense to take advantage, even if you do it gradually over time, to do it now,” she says. “People do counterintuitive things. They feel like they shouldn’t put money into the market when it’s down, but that’s when it’s cheap. That’s how people who are wealthy made their money.”
Sal Bocchimuzzo, chief financial planner with Mid-Hudson Valley Federal Credit Union, agrees to a point, though he stresses that it’s not always as simple as “buy low, sell high.”
“I don’t advocate market timing,” Bocchimuzzo says. “Looking at the numbers out there, we’ve had a great run since mid March, but this is definitely still in the early stages of the recovery. There’s still a lot of cash on the sideline. These bullish singles were out there in the fourth quarter of 2008, and things were very volatile. But if you’re in for the longer term, it’s a fantastic time to put a plan together and get in.”
Diversity
In order to ride out the current roller coaster-like climate and keep your cool, the first thing Jones recommends is keeping one’s fingers in a number of pies.
“My advice is to always have a well-diversified portfolio,” she says. “The thing that protects you on the downside is having a very solid mix of different-sized companies; US companies, and international companies.”
It’s a notion Jones says she always advises, whether in times of strife or prosperity. The idea is that one’s portfolio can manage a hit in some areas if it has others keeping the ship afloat.
“I have my clients segment their money into different buckets,” says Jones. “Their short-term money should be fixed in the bank with a guarantee on it. Their mid-term should be a mix of stocks and bonds, and their long-term can be more aggressive.”
Bocchimuzzo agrees. “Even though the market has recovered a bit, people are still concerned, and people want to know how to recover their losses,” he says. “It’s still very prudent to be diversified. Sit down and develop a personal financial plan, come up with timelines and a rational approach, rather than trying to guess the right sector and try to get it back in a year. Now is the time to be smart and have a plan.”
Baker also recommends variety in one’s investments, especially in troubled times.
“Bear markets come and go,” he says. “If you look at history, there’s a lot of ups and downs. You can’t really panic in these situations. If you have a diversified model, chances are you can ride it out.”
A Wake-Up Call
But even many of those well suited to aggressive investing have been rocked so hard by the recent economic upheaval that they’re not being as brave as they might have been in past years.
“I think people have had a huge wake-up call and are really paying attention,” Jones says. “Most of my clients never left the market, but they did get more conservative.”
Jones says those who are feeling the pinch less today were prepared for the possibility of a collapse, not only by virtue of a diversified portfolio, but also in how they saved their money. It’s advice she gives no matter what the state of the national or global economy.
“I always recommend this, it’s not new,” Jones says. “People should have a very good savings account, or an emergency fund. It used to be okay to have three months of living expenses, but now I’m recommending people have as much as six months to a year. It’s good to have that slush fund in case they lose their job.”
A Steadying Hand
But not every investment plan is right for everyone. There are as many different kinds of investors as there are opportunities for them to try and earn dividends on their money, and no one avenue to take is right for everyone. One of the keys to investing, the experts agree, is to know what you’re looking to do with the process. For many, those questions can be answered with professional assistance.
“Everybody’s got a different situation,” says Baker. “You can’t say one size fits all. We try to take everything into consideration and provide some ideas.”
In times of trouble, investors both new and experienced may find themselves looking at the market in ways they’ve never considered before. A steady hand may help them to feel a little less shaky.
“There’s been a lot of fear in the market, and there’s just so much news out there,” Baker says. People are looking for something to reassure them. Are they on the right track, and should they continue to do what they’re doing?”
One of the most significant results of the economic meltdown was that many investors with an eye on retirement were forced to re-think their plans.
“Some people may have to work longer based on their market exposure,” Baker says. They wanted to retire next year, and they may have to work a little longer than they wanted to.”
Jones says she’s seen the same thing. “It kind of depends on their age, their timeline and what they’re looking to do,” she says. “I would say that most people that were thinking of retiring anytime soon have pushed their timeline back, some as much as five to seven years.”
A Plethora of Options
As for investors looking to get their feet wet for the first time, their needs might be a little different, but, like more experienced investors, they shouldn’t necessarily sit on the sidelines.
“With newer investors, younger investors in their twenties and thirties, the main theme is a focus on retirement,” Bocchimuzzo said. “It’s pretty much on the individual with pension plans going away. A lot of individuals are looking for growth, because they see CD and savings rates so low. They want to have some kind of confidence that their money isn’t going to go away.”
Individual investors, regardless of their circumstances, are faced with a myriad of options to consider, and it’s important to know which is the right road to travel.
“Everybody is looking at everything, from real estate to gold,” says Baker. “There’s just so much exposure with the media, people don’t know what to do right now.”
While some investors have historically done well in real estate, Jones says it’s clear that avenue isn’t a sure-fire thing.
“My concern with real estate is that it’s a great investment if it’s in a place you want to live,” she says. “Real estate [is an option that] you can not turn it into cash instantly. It’s illiquid, and has all these costs, and often people don’t think about that. If you are an investor and have a large amount of cash on hand, there are great bargains to be had. You have to have tenants, and if that’s the case there are a lot of empty spaces. It used to be hard to find a rental. Now they’re abundant, and there’s a fair amount of foreclosures.”
But as long as one understands the potential difficulties, Jones says real estate still has enough lure for some investors that it’s hard to pass up.
“I love real estate, don’t get me wrong,” she says. “Young couples that were thinking about real estate but thought it was out of reach, with the government tax breaks, it’s a good time to get in.”
Social Responsibility
Jones says one of the recommendations she makes to the majority of her clients is that they consider sustainable investing, which, boiled down to its most basic principle, seeks to make money on socially responsible investments. One aspect of sustainable investing is a negative-screening process, which is utilized to eliminate certain securities from consideration, such as tobacco and alcohol concerns. Jones says the results can often prove favorable.
“Because of the extra screening process, we’ve found that in very difficult times, those particular kinds of holdings fare better,” she says. “People are being a lot more focused on sustainability. It’s a big push that I’m hearing about from a much bigger percentage of my clients. People are starting to pay attention to the value of having those extra screens and putting your money where your mouth is.”
Bocchimuzzo says that those who are concerned about where to go should consider working with a professional, one who is prepared to help answer some of their questions. That’s true no matter what the economic climate is like, he adds.
“Some of the basic questions, to be honest, always exist,” Bocchimuzzo says. “‘How can I generate an income stream for life?’ ‘Can I still retire in a number of years?’ But with lessons learned, a lot of people now are asking how to protect their assets going forward.”
Bocchimuzzo says it’s not only up to the investor to make things happen; a good financial advisor should also be involved in the process.
“I do get people from other firms that have been upset with the guidance they’ve had during the downturn,” he says. “The thing that I tell everyone all the time is that when you’re working with a financial advisor it’s a two-way street. They should be calling you from time to time to make sure whatever plan you have in place is working. It’s my responsibility to make sure they’re in the right place at the right time, and it’s their responsibility that they get in touch if things don’t feel right, or if they’re not feeling as aggressive as they thought they were.”
But regardless of one’s investment circumstances, Jones says it’s important to keep a sobering thought in mind before counting your chickens.
“You’re not going to get rich on anything anymore,” she says.
RESOURCES
Mid-Hudson Federal Credit Union www.mhvfcu.com
Third Eye Associates www.thirdeyeassociates.com
Ulster Savings Bank www.ulstersavings.com
This article appears in October 2009.
