The stock market is in turbulent times. Last week, prices fell down so low that it was frightening, and then rose up again. People were fearful of the roller coaster ride their stock holdings were taking. Lots of small investors did panic selling, while some professional investors and cash-rich companies bought back their own stocks, at bargain prices.
Right now, most investors lack confidence in the stock market. For the past three years, many mutual fund accounts, 401K retirement accounts and savings accounts have tanked. Both the wealth and incomes of most Americans were negatively affected by what has happened to their holdings. It seems that the only people who really made money in stocks were the stock brokers and financial advisers, not the small investors who have not made money for three years in the stock market.
More than half the households in America own stocks, for both income and growth. Bank account earnings are not keeping up with inflation, because money market interest rates are less than half of one percent. Most certificates of deposit are not much better, paying around 1 percent a year. Those stocks which appreciate in value over time, or pay up to 5 percent in dividends, look more appealing to small investors.
Small stock investors do not have the time or professional expertise to specialize in buying or selling stocks, especially in this volatile stock market today. They have to work and make a living first, so they turn to professional investors. Many are very good, but others churn the stocks to make higher commissions. And we have all read about frauds in investments.
Investing in stocks is important, but it comes with a lot of risk. Small stock investors generally look for asset growth, or dividend income, for retirement. For a small investor, there are three crucial steps that can be taken to preserve your stock assets in these turbulent times. Small investors can improve their chances of doing well by: (1) putting money in blue chip stocks, (2) buying municipal bonds, and (3) cashing in some stocks for cash to buy deals.
First, the small stock investor needs to diversify into blue chip stocks, which present a mainly safe investment for a stock portfolio, in these difficult economic times. Many blue chip stocks pay better dividend returns than current bank interest rates. Even municipal bonds give higher yields to investors than stocks do in today’s market. One must research properly for tax savings, as well as the safety of investing in higher-interest paying bonds. Everything has risk and the important thing is to lessen your investment risk in the current bear market.
For those investors who have cashed in their stocks, remember “cash is king.” If you have cash on hand when stocks reach the bottom, you will be able to buy stocks at bargain basement prices. The present stock market correction is based on a slower growth in the future, so investments to grow must be held for the long term.
Gold and silver are speculative and not desired for long term investment. Right now, investment in treasury notes are really for big time professional investors. They park huge amounts of cash for safety only, without any noticeable rate of return for investment purposes, at less than a quarter of 1 percent interest.
Some economists say the recession has not ended, so a double dip recession is still possible. It would be an extension of the current recession. Other market experts feel the current recession will end in three to five years. History has shown the 1930s Great Depression lasted more than 10 years, until World War II. Many economists feel it will take at least five years to start reducing the government’s debt, developing job growth, putting the economy back on track, and getting the housing market moving again.
The stock market will remain volatile in the near future. No one can time the stock market, so do not jump in or out of the market, or out of your mix of investments, without a lot of thought and planning. In general, it will pay to stay the course and not make major changes to your portfolio, in order to survive as a small investor.
Maintaining the status quo, depressing as that may be, will still be your best strategy for your present stock investment portfolio.
— Bernard Featherman is a business columnist for the Journal Tribune and former president of the Biddeford-Saco Chamber of Commerce.
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