SOME STRATEGIES TO EASE ‘EQUITY ANXIETY’
Ronald W. Rogé
I have a good friend who lives in Great Britain who is also a financial adviser. I was speaking with him several weeks ago and asked how his business was doing. “Ever since the FTSE [the British equivalent of the Dow Jones Industrial Average] went over 4,000, business has been great,” he said. “When the FTSE was 3,000 I couldn’t get anyone to put money to work. Now they’re calling and saying that they feel more confident and want to invest more money.”
This is a typical human reaction toward investing in stocks. When it comes to tangible things, we love to buy them when they’re on sale. But for some strange reason, when it comes to investing in securities, we’re often fearful of buying them when they’re on sale.
Here in the U.S. we’re beginning to see more prospective clients as the Dow has reached new all-time highs and the S&P 500 has done the same. So the question is: Is now a good time to invest? If so, how should I do this? Anyone who thinks they can time the market is in for a rude awakening. It’s been proven in dozens of rigorous academic studies that it’s impossible. Yes, some people get lucky, but it’s luck, not a proven skill.
In almost every investment committee meeting I have with my team, I remind them that markets “climb a wall of worry.” In other words, markets do not reward comfort. If you want to be a successful investor you need to have some degree of uncertainty about global and local events. The more uncertainty there is, the more likely you will be buying at a big discount. We manage these uncertainties by having a long-term time horizon (more than 10 years for equities); an asset-allocated portfolio; and extreme patience for our investments. Yes, they may go lower—and usually will right after you buy them—but you have to enter the market to benefit from its returns. So here are some points to consider:
- If you’re really nervous, try “dollar cost averaging.” Select a fixed amount of money and invest the same amount every month on the same day of the month, without regard to the market that day. You will build your portfolio gradually and the returns will manage themselves over time. This is how employees add money to their 401(k) plans. You can do the same with your IRA or taxable accounts.
- Take a look at balanced funds—that is, hybrid funds that combine a stocks, bonds, and sometimes a money market component that generally are geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. If you’re disciplined in rebalancing your asset mix at least once or twice a year, this is one way of taking risk off the table—it forces you to sell high and buy low.
- Carve out different portions of your portfolio to meet your cash needs at specific points in your life. For instance, if you’re planning to buy a vacation house three years from now, consider intermediate bond funds or short-term high yield funds—specialized funds that act as money market fund—that will provide the liquidity you need when you’re ready to buy the house.
- Still not brave enough to get in? Try selling some assets you haven’t used in quite a while and build a pile of cash. How about the 1957 Chevy you have taking up the space in your garage; the painting you inherited from your Great-Aunt Florence; or that stamp collection your Uncle Joe gave you when you were a kid. What about the time share you bought 20 years ago and have not used in the last five years? You might feel a little better about investing the money you raise by selling these unproductive assets to make your initial investment into the market, then begin dollar cost averaging every month.
Even with surging equities market, we’re living in tough economic times, with both short-term concerns and challenging long-term issues. But as long as we don’t go too far to the left or too far to the right, we’ll be OK. What’s important is to start investing. And stop worrying about the market.
Ronald W. Rogé, MS, CFP® is founder, chairman & CEO of R.W. Rogé & Company, Inc. a nationally recognized fee-only investment management and financial planning firm. Over the years he has been named to many lists of top wealth management advisers and is frequently quoted in the news media, including, The Wall Street Journal, Forbes, USA Today, Business Week, Money magazine and Fortune. His book, The Banker and the Fisherman: Lessons in Life, Wealth and Happiness in the 21st Century (with Roseanne Rogé and Steven M. Rogé) is available on Amazon. Contact: email@example.com
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