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SMART MONEY Magazine- Time to Put your Money To Work Again

September 10, 2009

It only took a 50% + move up before they decided it's ok to get back into stocks. Great Advice! from Smart(?) Money Magazine


Magazine Cover - by Reshma Kapadia

Put Your Cash to Work

Even with the economic outlook improving, wary investors are still parking more than $3.6 trillion in cash on the sidelines. In its September issue, SmartMoney magazine offers tips for making that money productive again. We’re featuring the article all week on SmartMoney.com.

A growing number of Americans seem to have it, a nagging anxiety, the kind that comes from a sense they should be doing something—something that makes them nervous. See the dentist? Nope. Hit the gym? Not a bad idea. But this uneasiness isn’t about working up a sweat or getting a tooth pulled. It’s about the rising discomfort over financial health. It’s about realizing it’s time to put your money back to work.

As a nation, we are sitting on quite a pile of cash. There’s $3.6 trillion in money-market funds today—nearly the highest amount ever. What’s more, those money-market funds are paying historically low rates: The average money fund pays just 0.37 percent, according to Bankrate.com. At that rate, your money will double in...let’s see...144 years. Most of us have a much shorter time frame than that. Americans lost $2.7 trillion from their retirement accounts in the crash, virtually everyone’s home has lost value, and more than 9 percent of us are unemployed. It’s tough to think about getting ahead in these circumstances, but more and more people are realizing that anyone trying to rebuild a nest egg needs to do a lot better than a 1 percent annual return, no matter how safe cash seems.

Some folks have already shown their willingness to pull some of the cash out from under the mattress: Financial planners are fielding calls from clients almost as eager to get back into the market as they were desperate to get out of it a few months ago. Atlanta-based financial planner Wes Moss says many of the calls he’s been receiving are a direct result of clients frustrated with the paltry rates offered by CDs and money-market funds. All told, investors have yanked more than $230 billion out of money-market funds since the beginning of the year; $125 billion of that was withdrawn in June alone. The market’s spring rally encouraged that many more people to release the grip on their cash and start buying stocks again.

But throwing money at stocks—especially in this market—isn’t the answer. In fact, advisers say the real issue today is figuring out the investments that will grow faster than the shaky economy and the areas that will provide some safety when things go awry. It’s no longer a matter of sticking some money in bonds for safety and plunking the rest into stocks. Stocks require even greater scrutiny, especially given how long-term investors can get hurt by fast-moving traders in volatile markets. Bond investing, meanwhile, isn’t just about safety anymore. Experts say bonds can add meaningful return to your portfolio. And don’t overlook other corners of the financial world: Exotic-sounding investments like commodities and options are becoming mainstream. As for real estate? It’s not just your home; it could very well become your retirement income.

Of course, the economy can still be a scary thing, and investors would do well to hold a little more cash than usual. Most experts agree we’re in for several lean years. And investors may be faced with much tougher challenges ahead—including higher taxes, rising inflation and a ballooning deficit that will likely weaken the dollar even further. Catching up—let alone getting ahead—in this sort of environment will require a lot of strategy, some calculated risk-taking and maybe a little antacid at the ready. But experts say that just because investing your cash may be trickier than ever, that’s no excuse to avoid it. “You have to look at your investments in a different fashion or you’ll miss the boat,” says Dawn Bennett, chief executive of Bennett Group Financial Services. SmartMoney canvassed financial planners, Wall Street analysts, economists and real estate experts to find out what investors need to know before that ship sails.


Rating: 4.3/5 (3 votes)

Comments

kfh227
Kfh227 premium member - 5 years ago
Now is still a good time to invest in stocks. The deals are harder to find than they were even 1000 Dow points ago though. It seemed like when the Dow was under 8500, finding bargains was like taking candy from a baby.
traderashish
Traderashish - 5 years ago
recently I was researching a stock and decided to take a look at a well known analyst wall street company report.

All buy recommendations over last few years were when stock was nearing the peaks and all sell recommendation was when stock was nearing the bottoms.

And it was amazingly consistent. May be I should follow that analyst. Short when he says buy and go long when he says sell.

I sometime wonder why these analysts get paid so much.
kfh227
Kfh227 premium member - 5 years ago
traderashish Wrote:

-------------------------------------------------------

> recently I was researching a stock and decided to

> take a look at a well known analyst wall street

> company report.

>

> All buy recommendations over last few years were

> when stock was nearing the peaks and all sell

> recommendation was when stock was nearing the

> bottoms.

>

> And it was amazingly consistent. May be I should

> follow that analyst. Short when he says buy and go

> long when he says sell.

>

> I sometime wonder why these analysts get paid so

> much.


There is a reason. And it is sad. Analysts write these reports so the average person on the street can be sold investments by the companies brokers. That is the only reason they exist.

Sadly, the average person does not realize how the business works and how much they are being ripped off. All that matters to these firms is that they make a commission. They do so whether or not you make money.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago


The NY Times confims the trend back into stocks - AFTER a 50% rise!

Cautiously, Small Investors Edge Back Into Stocks



Like millions of ordinary investors, Cindy and Eric Canup are still recovering from Wall Street’s big downturn. Their portfolio is off by 25 percent. They are mindful of their spending. And their dreams of buying land in Northern California or Oregon have been delayed five to 10 years, until they can rebuild their retirement accounts.

Daniel Rosenbaum for The New York Times

Mr. Mancini with his wife, Patricia, and their dog, Joshua. He has sold some financial stocks and become more conservative.

Yet with no guarantee they will ever be made whole again, individual investors like the Canups, who live in Oakland, Calif., are sticking with the stock market. Recently, with help from their financial adviser, they nudged some of their cash into mutual funds and took on riskier investments. They have even stopped tossing unopened 401(k) statements into a filing cabinet.

“This time last year it was doom and gloom and dire,” said Ms. Canup, 48, who works for the health care provider Kaiser Permanente. “I’m kind of amazed that we’re able to get back in as quickly as we are.”

When the financial crisis hit, some of Wall Street’s prophets warned that individual investors would be lost for years. The gospel of building a diversified portfolio, buying regularly and holding on till retirement, appeared dead. But despite a rout that erased fortunes and upended retirement plans, few smaller investors have folded their portfolios or cashed out: While they are poorer today and still leery of the markets’ returns, many are still chasing the gilded promise of profits and wealth.

“It’s got a track record,” Linda Blay, a bookkeeper in Orange County, Calif., said of the stock market. While her portfolio is still off by 30 percent, she said that “it outperforms any investment. I think it’ll come back.”

Participation in 401(k) plans held steady in 2008, even as the average account lost 28 percent of its value, according to Hewitt Associates, which tracks retirement plans. More people moved their money into cash or bonds for safety, but they did so at the margins. Over all, the contribution rate dropped less than half a percentage point.

And in the first half of 2009, when stocks hit their worst levels and then pivoted higher, only 9 percent of investors made trades in their 401(k) accounts, according to Vanguard. At the same time, alternative investments like real estate have suffered mightily, while interest rates on certificates of deposit or even high-yield savings accounts have plunged, making them less attractive.

“Inertia has really ruled,” said Pamela Hess, director of retirement research at Hewitt. “The vast majority of participants have changed nothing — not if they save, not how much they save. Nothing.”

Now, some of the money that fled stocks for safe harbors like money-market funds and government bonds last year is beginning to return. Even with trillions still sheltered on the sidelines, some $56 billion has poured into equity funds since April, according to the Investment Company Institute.

Of course, making money again can do a lot to bolster anybody’s confidence.

Over all, the average Vanguard 401(k) balance grew by $3,300 through the end of June, up about 6 percent for the year — not a great return, but better than before, according to the firm’s most recent numbers. In the first six months of 2008, the average Vanguard account lost $6,898, or nearly 9 percent, of its value.

As of Thursday the Standard & Poor’s 500-stock index was up about 10 percent for the year. But the index is still down a third from its peak, and investors are uncertain whether stocks will continue to rise in a fitful recovery hampered by high unemployment and sluggish consumer spending. Even with 10 percent annual returns, it would take typical stock investors close to three years to recoup the funds they had at the beginning of 2008.

Daniel Kelhoffer, 67, an investor in Georgia, visited his son in Germany this summer and cruised the lake near his house in his wooden 1959 Chris-Craft motorboat, encouraged by the steady rise in his monthly account statements. Joseph Fredrick, an investor in Cincinnati, exulted that, largely because of his financial adviser, his portfolio had fallen only 12 percent since the market tanked.

In North Carolina, a retired Wachovia executive, Robert Paynter, lost tens of thousands of dollars when his stock options and Wachovia shares hit the skids. In October, he told The New York Times that he felt as if he were witnessing his own death with each plunge of the stock market. This summer, he bought a year-old Corvette convertible. And while he and his wife canceled a trip to Europe, they are contemplating a Mediterranean cruise next year.

“I’m feeling a whole lot better,” he said. “As ugly as it got, I never got to a point where I thought I was going to have to go back to work or miss a meal. I can take a lot bigger hit than I thought I could.”

After the crash, Gil Livingston, a retired Hewlett-Packard manager from suburban Detroit, decided he would manage his own money instead of letting asset managers at UBS handle his portfolio. He missed the bottom of the market in early March, but has made money from well-timed purchases of technology stocks and investments in emerging markets.

“I’m slowly sticking my head back out of the ground,” he said. “I’m doing fairly well. My equities are up.”

Mr. Livingston, 67, and his wife still have a winter home in Cape Canaveral, Fla., and say they have not been forced to curtail their lifestyles. With their portfolio off by 20 percent, though, they have put off traveling and are considering whether to raise some cash by trading in their Michigan home for something smaller.

But many are more deeply scarred from the financial and psychological effects of their losses.

Last autumn, as his retirement account was plummeting in value, Joe Mancini decided to sell some financial stocks and seek more conservative investments like bonds, gold and metals funds. Even though he was able to cut his losses, he and his wife are still down about 30 percent.

“A few years ago I was hoping to retire when I got close to 60,” said Mr. Mancini, who is 58 and works for an electronics equipment distributor. “I can’t even put a date on it now.”

If thriftier consumers become a legacy of the recession, Wall Street’s plunge may have created a generation of more cautious individual investors.

Robert Furey, who works at a computer company in Naples, Fla., said he had followed all of the conventional rules of investing: he planned for the future, bought a diverse array of stocks, bonds and index funds and never tried to time the markets. He lost a decade’s worth of gains when the stock market plunged, and said he did not know whether he would ever trust the markets again.

“I was a deer in the headlights,” he said.

As Wall Street raced higher in the last few years, Ben Silbert, 38, a corporate lawyer in Manhattan, said he tried to talk his wife into funneling more of their money into stocks. But now, with their portfolio down 15 percent since last August, Mr. Silbert said he wanted to make a shift toward fixed-income investments.

“I’ve seen what can happen,” he said. “It’s been a good lesson. It’s been an eye opener for me.”

commodity
Commodity - 5 years ago
I read Dumb Money magazine so I will know where not to invest.

Or I just watch Jim Cramer and Larry K.
Evan
Evan - 5 years ago
Trader, I wonder that too.... but thank God for pros like that in the game.

Commodity, once I was reading one of their stories and they managed to spell "mechanic" wrong.
Evan
Evan - 5 years ago
To know who to vote for read Stockdocx. ;)

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