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Playing the stock market

Local experts advise how to handle volatile markets

August 16, 2011
By LINDSEY MUTCHLER, Messenger staff writer , Messenger News

The stock market moves up and down on a seemingly constant basis.

But last week's extreme swings had the rapt attention of the nation, with pundits comparing the week to October of 2008 when the country entered into a recession.

While stocks rallied on Monday, it's anyone's guess where they're headed.

Bill Kent, a financial advisor with Edward Jones Investing in Fort Dodge, said the best approach is to stay with one's long-term financial plan when markets are erratic.

"No one can consistently predict the ups and downs of the market, so do not try," Kent said. "Build a diversified portfolio consistent with your risk temperament and resist the temptation to over-manage it. It's time in the market that's important, not timing the market. Your portfolio value will grow over time as the U.S. and global economies expand."

Another financial advisor in Fort Dodge, Bruce Kentfield with Ameriprise Platinum Financial Services, gave similar advice.

"Remember to stay calm," Kentfield said. "The markets tend to correct themselves over time. Make sure that you are invested according to your risk tolerance."

So, what is someone's risk tolerance?

It differs from individual to individual, Kentfield and Kent both said.

Generally speaking, younger investors are able to take on more risk, but that's not to say older investors can't have a stake in the stock market.

"Make sure you are comfortable with the amount of risk you are taking," Kentfield said. "If these swings in the market keep you awake at night because you are absolutely frightened that your investments will vanish, you need to talk with your advisor."

He added that rebalancing one's portfolio at least annually, for those ages 50 to 80, will also help keep investors within their risk tolerance.

For those who aren't yet in the stock market game, this may be a good time to get in.

"If you have a long-term outlook on your money, this is an excellent time to buy," Kentfield said.

Kent added he likes dividend-paying stocks that have a good track record of increasing those dividends over time.

"All of them are lower priced than say three weeks ago," Kent said.

However, Kentfield cautioned that if you are an investor with a very low tolerance for risk and/or a short investing time frame, such as one to three years, this may not be a good time to stick a large amount of money in the market.

While the debates will probably continue over whether or not the U.S. economy is entering a "double dip" recession, Kent said the recent stock market swings are notably different from the plunge that occurred in 2008.

"In 2008, the U.S. was in recession," Kent said. "Today the fundamentals of the market are actually quite good."

He pointed out five key differences:

Economic growth remains sluggish, but is positive. "That wasn't true in '08," Kent said.

Job growth has nearly doubled this year.

Corporate earnings are on record pace.

Oil prices are lower.

U.S. financial companies, in general, are in better shape.

Kentfield added that during the recent stock market swing the worry was primarily about international problems, such as those in Greece, Italy and Spain, not to mention the uncertainty in Washington, D.C.

"The worries have affected the confidence that many companies have in expanding their businesses," he said. "They are sitting on lots of cash instead of investing in their businesses and the market realizes that."

There are also investment options that are less volatile than the stock market. Kent and Kentfield suggest all investors discuss their options with a financial advisor to determine what's appropriate for them.

Contact Lindsey Mutchler at (515) 573-2141 or lindsey@messengernews.net

 
 

 

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