5 Tips For the Average Investor
When it comes to where we are in the economic cycle, expert opinions vary widely. Some experts think the economy could be headed for a double-dip recession, while others say it's headed for a slow but steady recovery. The stock market remains full of uncertainty because of a combination of factors, including worries that the U.S. economy is slowing and doubts about the strength of the Euro. It's times like these when investors should remember a few basic investing rules that can help see a portfolio through uncertain times. To help you wade through all of the noise, here are a few suggestions from a financial adviser about how to keep your cool and make informed investment decisions
Investors should know that their portfolios will experience ups and downs. After a decade in which the
Don't try to time the market.
Fund investors tend to enter and exit some funds at the wrong time.
Whether you're a set-it-and-forget-it investor or someone who favors more active allocation, it's important to occasionally check on the performance of your portfolio. Greene says that her team looks over client portfolios every six months or so to see if any rebalancing is necessary. She determines if changes need to be made by examining how the portfolio has performed over time and whether or not her clients may be over-exposed to a certain asset class. In her opinion, younger investors only need to rebalance about once a year, while older investors who are nearing retirement should do so more frequently because of their shorter time horizon. Often, rebalancing can mean repositioning your portfolio to emphasize asset classes that was beaten up during a downturn. Greene does this for clients. For instance, the high-yield bond market, which is generally more volatile than that of investment-grade bonds, took a huge hit in 2008 during the financial crisis. Recognizing this trend, Greene's team overweighted high-yield bonds in their client portfolios in mid-2009. "It was a perfect place to be," she says. In 2009, the average high-yield bond fund rallied and returned about 45 percent, according to
Diversifying your portfolio with a mix of stocks and bonds is important because these asset classes generally don't perform in lockstep. But many advisers, including Greene, believe that it's crucial for investors to look beyond such traditional investments--to asset classes like real estate and commodities--to diversify even further. Real estate funds are an example of an asset class that sometimes zig when traditional investments zag. "Real estate investment trusts (REITs) took it under the chin in 2008 and the beginning of '09," Greene says. "They've not only stabilized, but they ended up having a really solid year in 2009 with still an enormous amount of upside." The average domestic real estate fund outperformed the
Block out the background noise.
Talking heads on cable TV can persuade some investors to believe just about anything. "There is understandably a disconnect with the average investor who is not glued to this stuff and is trying to make a living and go to work everyday that just picks up these headline news stories," Greene says. When all the experts are in agreement--whether they're all bullish or bearish--that's when Greene says investors should be concerned. "As long as there is a fair balance between those two positions the market will be OK," she says. "Frankly, when an investor only hears bad news, it should be a bit encouraging."
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