Investing in volatile times can work

Filed under: economy,Print | Tags:,

When the stock market is high, poised possibly to fail, and when interest rates are at rock bottom, where does a person invest his or her money?

“The stock market is up 180 percent from the March 9, 2009 bottom,” said Certified Financial Planner Jeff Jensen. “They remember when they lost 57 percent of their money.” 

With that lingering memory, should a person keep her money invested in stocks?

“It’s really an interesting time,” Jensen said. “Most people are either caught up to where they were or they’re a little bit ahead,” Jensen said of the 2009 activity. 

“My recommendation, based on research and fact, not based on beliefs, is that you want to have a long-term approach to asset allocation that you can stick with through good markets and bad,” said Susan Strasbaugh, a certified financial planner and an enrolled agent.

Money injections 

Since 2011, the Federal Reserve has been pumping significant money into the economy with the theory people would begin spending it and to strengthen the banks.  

“The Federal Reserve has been doing everything it can to put money into the market in the hopes that people will use that money and spend it,” Jensen said. 

“There’s a lot of money sitting there. It has to go to the banks first, and the banks aren’t lending it,” Jensen said. 

Banks are more conservative about lending the money, Jensen added, because the banks don’t want a repeat of the trouble they got into in 2007 and 2008. 

According to Market Watch, a product of the Wall Street Journal, the price of almost every asset class, from stocks to bonds to land is high, “the result of investors across the globe reaching for higher yields in a world of zero interest rates,” said an article on the website by Rex Nutting. 

A New York Times writer calls it “the everything boom, or maybe the everything bubble.” 

That writer underscored that prices of all investment classes are increasing and income from those assets is decreasing.

Now, there’s $11 trillion in banks, and “they’re being more conservative on how they’re lending it out,” Jensen said.

He suggested people invest in nontraditional assets. For example, investors of oil and gas pipelines are paid to transport the natural resource through the pipeline. 

“Those types of nontraditional assets have a yield of 4 to 6 percent right now, when a bond is paying almost zero,” and when interest rates increase, the value of the pipeline won’t drop, Jensen said.

People are frustrated because new lending rules make it more difficult to borrow  for new purchases or to refinance, he said.

“They’re doing a lot more research before they’re lending out money,” Jensen said.

Investor Warren Buffet points to bonds as “the next shoe to drop,” Jensen said. 

Jensen suggests diversification. Some 91 percent of the return on an investment depends on how the money is divided, Jensen said. 

Strasbaugh agreed, saying that asset allocation “is responsible for the vast majority of investment return.” She recommended having a long-term approach to asset allocation “that you can stick with through good markets and bad.” 

During the economic slump of 2008 and 2009, money was made in stocks, bonds, real estate and commodities. Some companies that have made more money include Microsoft, General Electric and Pfizer.

Consider fund investment 

Instead of single companies, people should invest in a fund, she said.

“For example, the Vanguard Dividend Growth Fund, invests in some of the largest dividend-paying companies, and you’re fairly diversified.” 

Strasbaugh and Jensen mentioned real estate investment trusts, or REITs. Those investments are required to pay 85 percent of profits back to investors, Strasbaugh said. 

Jensen also mentioned Treasury Inflation Protected Securities. TIPS increase in value as inflation goes higher. Since 1991, those have paid 14.1 percent a year, so he recommends them to clients, Jensen said.  

Strasbaugh said how a person invests depends on the individual. 

“If you need the money 25 years down the road, who cares what happens next week?” she said. “If you need the money in five years, keep it liquid.” 

Overall, the important aspect of investing is what a person can control, she said. 

“It’s more important how much you save and how much you pay in taxes.

“Those have a bigger impact on your long-term growth of your net worth than your investment return. You do have control over how much you earn, how much you save and how much you pay in taxes,” Strasbaugh said.

“It’s all about asset allocation,” Jensen said. “It’s all about understanding the client goals and reducing risk and volatility.”