Friday September 18, 2009

Financial Adviser: Recessions are to be Expected

Corrections part of normal market cycle, he said
By Lou Sorendo

    An Oswego financial adviser is telling investors to keep a stiff upper lip through the recession, particularly since it is an inherent part of the normal market cycle.

    George Allen, wealth management adviser for Northwestern Mutual is Oswego, said recessions are normal parts of the business cycle. “This one happens to be a bit worse than some recent ones, but not as bad at this point as ‘80-‘82,” he said.

    Allen noted a number of his clients that work at various companies have told him they have done all the layoffs they are going to do.

    He said the rate of unemployment has lessened, but overall joblessness still may increase.

    Should investors have faith that markets are rebounding after the market crash that rocked the financial markets last fall?

    “Corrections should be recognized as part of the normal market cycle, and savvy investors acknowledge this and, over time, are confident the market will recover,” Allen said.

    He noted that the market has experienced 20 percent or greater market corrections 10 times in the past 60 years.

    “Despite this, if someone invested $100 in the S&P 500 Index 60 years ago, the initial investment would have grown to over $78,000 today,” he said.

    Allen said he tries to educate his clients about investing with a long-term perspective.

    “It can be difficult for them to maintain this perspective during challenging economic times, but as top athletes would tell you, the only way to win is to avoid distractions and remain focused during difficult times, and keep the end goal in mind,” he said.

    Allen said a handful of his clients have become more cautious, but most have stayed the course or added to their accounts.

    He noted that now may be the time to purchase equities being that the stock market has seemingly bottomed out.

    While historical performance is not indicative of future performance, the market has trended upward over the long-term, Allen said. “Many investors who purchased when equity prices were relatively inexpensive tended to experience gains,” he said.

    Diversified approach

    What sectors should the stock market investor be focused on?

    “While I can’t suggest specific sectors, I believe in a diversified approach that is made up of many parts—small-cap and large-cap stocks, growth and value stocks, domestic and international stocks, bonds of different countries, maturities and qualities, and cash equivalents,” he said. “Of course, these choices are based on a client’s individual asset allocation goals and risk tolerance, so no two investment approaches are the same.”

    Allen said generally speaking, the stock market can add real value to investors’ portfolios over the long term.

    “The important lesson is to not let short-term declines keep investors from reaping the gains of long-term investing,” Allen said. “The key for investors is to work with their financial advisers to formulate a plan to fit their goals, time horizons and risk tolerance—then stick with it.”

    Allen said the most widely accepted way to help reduce the risk of investing is diversification. The key, he said, is spreading money among a variety of investments as opposed to investing in just one.

    “If portfolios are diversified across different asset classes, an investor’s financial security generally isn’t tied to the fluctuations of a single investment,” he said. “Of course, no investment strategy can assure a profit or protect against loss in a broadly declining market.”

    Allen said there are some time-tested principles of successful investing that can help people stay focused regardless of what is happening in the markets.

    “Take advantage of market opportunities, don’t try to time the market and stay the course,” he said. “Also, build a well-diversified portfolio, be a consistent investor, let rebalancing do its job and don’t go at it alone.”