A Buying
By Linda Stern
WASHINGTON (Reuters) - Never in the history of
So unless you think this is a cataclysmic change in the world order, it might be a better time to be putting money into stocks than taking it out.
Does that mean you're going to catch the bottom? Probably not. Frankly, I would have written the same column last week, and readers who took me up on it would have lost money immediately. Nevertheless, the advice stands.
The people who got the most beaten up in the current bear market are those who bought the ``this time it's different'' argument and really thought stocks would never come down. Those who will be most regretful in 10 years are those who are buying the ``this time it's different'' argument and believe stocks will never go back up.
Stocks always come back after a prolonged slide. In the 118-year history of the Dow Jones Industrial Average, there were 19 bears. In the year coming out of the bear, the average annual return in the Dow was 40 percent.
That doesn't mean that savers should cash in their houses and throw their kids' tuition funds into the market. The recovery could be much slower than average. But it means that anyone with a long-term perspective should at least keep putting regular money into stocks. This is the opportunity for anyone who won't need their money for 10 years to accumulate shares.
``People are just freaking out, I can't tell you how many people are calling me, and saying 'I want to go to cash,' people in their late 30s, which is absolutely insane,'' says Patrick Horan, a Towson, Maryland, financial adviser.
Instead, he is exhorting them to go the other way and put all of their 401(k) money into growth stock mutual funds now. He tells them, ``What you should pray for before you go to bed is that the market stays in the crapper for 10 years. You'll accumulate an enormous amount of shares.''
Young people should be happiest of all with the current state of the market, but even near retirees should panic less and look long term. One lesson everyone has learned over the last decade is that retirement typically lasts a long time -- 20 years or more.
So, even 60-year-olds who were hoping to retire soon need to have some money invested for the long haul. Some people who suffered losses might still have to work longer to build enough cash to cover the early years of retirement, but that doesn't mean they should pull all of their retirement money out of stocks.
Where would you put it? The time for putting it under the mattress was 1999, not today. Bonds, which have had a nice run, could suffer soon if there are more major WorldCom-style defaults. Real estate already has been bid up; buying a real estate investment trust now is a little like buying tech stocks back in 1998. Certificates of deposit? They are paying 2.48 percent interest these days, according to Bankrate.com. That's not even enough to best inflation.
Willing investors might wonder how best to put money back into the market. This isn't the best time for stock picking. Under the best circumstances it takes hours of research to choose good stocks, and hours more to keep up with them. Now, individual investors can't even count on their own research because they have no way of knowing which companies and their accountants have been lying and which have not.
It is a good time to pick a couple of solid mutual funds and just keep feeding them monthly, as you would in a 401(k) account. Those who don't want to work at choosing investments could start, or continue, feeding a solid broad market index fund, such as the Vanguard Total Stock Market Index Fund.
Those willing to do a little research can find a couple of solid stock-picking funds, such as a stock fund that specializes in finding values.
Those who want to do even more research can select specific sectors that have been particularly beaten down, like financial services and pharmaceuticals.
Anyone for high tech?