“There’s no blanket answer,” says Gerry Meckley, branch manager of Folger Nolan Fleming Douglas in Cambridge, Maryland. He explains that deciding what to do regarding your investments, whether new or existing, depends on many factors, including where people are in their lives and their current financial situations.
“There’s no secret to this business: It’s buy low, sell high,” Meckley says.
Although new investors may potentially do well, “If somebody comes in to me now, and they’re in the phase where they’re using their nest egg for income, it’s not such a good time.”
This economic downturn is not new. “It’s happened historically. This is a blip in the road,” says John Ratnavale, president and chief investment officer of Chevy Chase Asset Management in Bethesda, MD. Regarding new investments, he says it’s important to know what will complement those you already have.
“I would revisit why you made the decision in the first place to put [money] in this allocation or this type of investment,” says Ratnavale. And as for retirement accounts, he says, “There’s never a reason to not be putting more into your 401K. If anything, when the market’s down, that’s when you want to be putting more in.”
Allocation, Allocation, Allocation
“Joe Schmoe might be better off just battening down the hatches at the storm, particularly if he doesn’t have an advisor or he’s not really fully invested in managing his money,” says Rick Vollaro, a senior portfolio analyst for Pinnacle Advisory Group in Columbia. Professionals, he explains, can use a number of techniques during rough financial times.
“You can start with broad asset-allocation changes within the portfolio,” says Vollaro. “I’m talking about simply switching up within your portfolio the amount of stocks versus bonds versus the amount of cash versus the amount of alternative investments you have.”
“If the reality is that you’re losing more money than you can tolerate, you need to look at making a change before you lose more,” says Michael Kitces, the director of financial planning at Pinnacle. “It suggests that maybe you got a little too risky in the first place—which is either a reflection on you and how you were picking your investments, or possibly your investment advisor and how he was selecting a policy for you.”
Emotional Rescue
Investors tend to get extremely emotional when the market goes down. “It’s human nature to panic,” says Ratnavale. That’s why the experts suggest that, in most cases, people should consult professionals when they decide to invest.
“The reason we steer a lot of people towards being strategic if they’re not otherwise working with a professional is it’s hard not to be emotional,” says Vollaro. He states that professionals “eat, breathe, and sleep this stuff all day.” But the average person doesn’t, and tough financial situations tend to make them freak out.
“A lot of times when emotions rule, [they] rule at the exact wrong time. That’s why the market does what it does,” he continues. “If everyone didn’t get ridiculously greedy and ridiculously fearful sometimes, there wouldn’t be investment opportunities. That’s part of what makes the market.
“For a lot of people, the best way they can deal with their emotions is to hire a professional and delegate it. Let somebody else do your worrying,” Vollaro says. “Or follow that traditional but rather solid approach of simply owning a well-diversified, passive portfolio, and when you go through environments like this, sit tight and don’t make any changes.”
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