Investment Strategies for a Down Economy
September 23, 2009
As retirement nears, many teachers are not alone in wondering how best to protect and preserve their nest eggs. It's not an easy question to answer, even with the stock market up substantially for the year. Despite the market's rally of recent months, clouds of doubt still remain. Many experts view the rally as merely a prelude to more bear-market blues.
And that means teachers should be socking all of their funds into secure, conservative investments such as CDs and government bonds, right? Wrong, says Lisa M. Forbes, a senior financial advisor at Ameriprise Financial, Colorado Springs. "Diversification is key, especially in this market."
Obviously, retirement investing is a perennial concern and the topic of endless personal finance articles. But even in today's relatively unpredictable economic situation, the fundamentals remain pretty much unchanged: Diversification is a must. Investment strategies will vary according to an individual's tolerance to risk. Inflation is always lurking. And many investors are feeling paralyzed.
"It's very common for the small investor to do exactly the wrong thing," Forbes says"namely, cash out of the stock market after it has fallen as hard as it did last year and then stay on the sidelines until it's too late. "You end up selling low and buying high," she says. But even now, she adds, with the market significantly up from its low last spring, "there's a lot of bargain shopping still possible."
Stable, even government-insured investments, such as CDs and government bonds"not to mention cash and cash equivalents"surely have a place in any planning-for-retirement portfolio. But so do potentially higher-paying, more volatile, and yes, riskier, investments like stocks and mutual funds.
As always, the big question is how much risk is an investor willing to tolerate? Answering that question is partly a matter of gauging one's own emotional make-up. But equally if not more important are entirely rational factors such as the current value of one's nest egg and how far into the future one's retirement date is. "If you have all the money you'll need for retirement, why take excessive risk?" Forbes asks. But someone who sees the need for more money might be more willing to gamble.
Forbes strongest recommendation is to invest consistently"steadily, that is, even as stock market prices rise and fall. Almost by definition, steady investing means buying some stocks low and some stocks high, but "people are always rewarded for discipline," Forbes says. "It can be really hard to maintain that discipline if you don't have confidence, but people who have a plan for investing can generally avoid the emotional pitfalls."
And how to bolster that confidence? The current economic downturn, Forbes says, is "an excellent time for investors to ask questions, to evaluate their portfolios, and most of all, to seek the help of a competent advisor. Most people are caught up in fear, and they get paralyzed. It doesn't have to be that way."
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