Local investment advisers offer tips on weathering latest market tumbles
Published 12:00 am Sunday, March 18, 2001
Few investment professionals will attempt to predict how the volatile stock market will perform in the near future. But they will say that having diversified investments and keeping an eye on the long-term economic trends will help investors weather shorter-term stock declines like this week’s market falls.
Kenneth Taylor, chairman of the Division of Business at Copiah-Lincoln Community College, sees the recent declines as a market adjustment following a long period of growth and the first weeks of the Bush administration.
Federal Reserve Board Chairman Alan Greenspan’s indications that the Federal Reserve may cut interest rates and his remarks in favor of tax cut could be promising signs for the economy, Taylor said.
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&uot;A tax cut would give consumers more purchasing power,&uot; Taylor said. &uot;Lowering of interest rates will hopefully increase the ability of firms and consumers to borrow money.&uot;
William McDonough, an investment adviser for Edwards Jones & Co. in Vidalia, said his firm expects the &uot;Fed&uot; board to cut its federal funds rate by at least half a point when it meets on March 20. &uot;Over the last 85 years, the stock market on average is 20 percent higher one year after an initial rate cut,&uot; he said. &uot;It is 28 percent higher one year after a second rate cut.
&uot;While there is no crystal ball to forecast exactly when and how the markets move, investors can recognized that positive steps are being taken&uot; to improve the economy, he said.
Given the market’s uncertainty, he said, investors would be wise to concentrate on what they can control – the diversification of their portfolios and control of their own emotions. &uot;People who keep a cool head&uot; are usually the ones who come out ahead, McDonough said.
&uot;The key is that individuals have the proper time frame and asset allocation plan that would meet their risk level,&uot; said Bill Byrne, first vice president of investments for Salomon Smith Barney in Natchez.
The investment risk a person can afford to take depends on a myriad of factors. For instance, if someone plans to make a large purchase, such as a home or vehicle, in the next three years, that person typically does not need to invest that money in the stock market, Byrne said. But in general terms, when a person subtracts his age from 100, the difference represents the percentage of a person’s portfolio that should be invested in stocks.
The portfolio of a person who is 70 years old, for example, should probably contain only 30 percent stocks, with the remaining 70 percent in bonds, Byrne said.
On the stock side, a person might do well to invest 20 percent in large growth companies, 20 percent in large value companies and 5 to 10 percent in international companies, he said.
&uot;The key is to have good asset allocation,&uot; Byrne said. &uot;People got caught up in high-technology stocks this time, and we hit a bad technology cycle.
&uot;The day traders are the ones who got hit the most. For people with proper asset allocation, this is not the end.&uot;
Byrne also said that it is important for investors to have proper expectations about the market. &uot;Lately, we’ve been seeing 30 percent (returns), while the historic averages have been 11 to 12 percent,&uot; he said.