Investing in a rocky market

E-mail this story

Print this story

Share

The recent volatility of the stock market has left investors at all income levels biting their nails, but there is a silver lining: When the market is down, it can be an excellent time to reallocate and rebalance your portfolio. "It's actually better to do that now than when the market's high, because you always want to buy low and sell high," University of Illinois Extension educator Kathy Sweedler said. But before making investments in such an unstable environment, Sweedler recommended people seek the counsel of a financial expert who can give them the guidance they need. "We don't want people to panic and sell everything or buy a whole lot of just one thing," she said. "It has to be a more balanced, measured approach." Bernie Buckley, investment adviser at Sauk Valley Financial Services in Sauk Valley Bank, agrees that although there are bargains to be found, the same basic investing rules still apply and are even more important in such a turbulent market. "The key to staying insulated or reducing risk during times like this is broad diversification," Buckley said. Some investment professionals are trumpeting the death of the age-old buy-and-hold strategy, but Buckley is still a firm believer in the power of long-term investing. "It's important to stay focused on looking for really good companies and investing money over a period of time," he said. "All you have to do is look at the power of dividend reinvesting. It's a no-expense way to have portfolio growth." Like Buckley, Chad Nicklaus, a financial adviser at Nicklaus Financial Services in Dixon and Amboy, is a proponent of investing for the long haul, with emphasis on diversification. "Doing a lot of trading can be risky, so we focus on long-term buys," Nicklaus said. "It's really important now to have diversification across different asset classifications." Two very important pieces of the investing puzzle must be reassessed when things go south, he said. "We try to look at a person's risk tolerance and time frame for needing their money. During times like these, it's probably best to just ride it out if you don't need the money right away, rather than post your losses." People who are already retired, or close to it, should have a portfolio with greatly reduced risk exposure, Nicklaus said. "People in retirement shouldn't have lost as much during all this, because as you get older, equities are a much smaller part of your portfolio. You still need some exposure to equities, but it's more about protecting what you have." If you do have some risk tolerance, Nicklaus said the current market does present some good buying opportunities. "In 5 to 10 years, you'll probably look back and wish you would have done more buying," he said. Given the additional risk inherent in this market, finding the good companies among the wreckage requires a considerable amount of diligence. "Look at good companies that have been beaten down and lost a lot of share value that still have strong earnings," Buckley said. It's also a good idea to stay away from certain sectors that have been most directly tied to the economic downturn, Buckley said. He cited companies that are tied to housing, energy and the credit crisis as being at the top of that list. There are certain areas of the economy that hold up better than others in bad economic times. Railroad stocks are a good example of those categories that can reduce risk as part of a diversified portfolio, he said. "Even in this economy, we still need to move coal, oil and corn," Buckley said. In the past, many financial planners were paid a percentage of their clients' portfolios, limiting their service to high-income investors, Sweedler said. That's no longer the case, with many planners offering consulting services on an hourly rate. That not only opens up the service to middle-income people, Sweedler said, but it also allows people who would rather continue to manage their own portfolios the option of getting one-time advice. When choosing a financial adviser, it's important to know what to look for, Sweedler said. Inexperienced investors should look for someone who has expertise in a wide array of financial consulting and can offer advice on a client's complete financial picture: insurance, savings and investments, she said. At Sauk Valley Bank, for instance, a new investor has access to a variety of insurance products, fixed and variable annuities, corporate and municipal bonds, stocks and mutual funds. Make sure you understand how the adviser will be paid, whether it's a flat fee, hourly rate or percentage of your portfolio, Sweedler said. And know whether the adviser is required to have a fiduciary relationship with his or her clients - that means they must put their customer's best interests first, even above their own, which is not a requirement for all financial planners. "Someone who doesn't have a fiduciary relationship might give you good choices, but not necessarily the best choices," she said. When choosing a financial adviser, interview multiple people and ask lots of questions to find someone you're comfortable with. There should be no charge for an initial visit in which no advice is given, she said. And take the time to check out advisers and investments before handing over any money. The Illinois Securities Department can confirm whether an investment option is registered with the state and can provide information on the licenses and disciplinary records of an adviser, she said.