We've been here before: The stock market is booming, and it feels like a good time to pump money into investments for retirement or college savings.
But the advice of financial advisers, repeated in good times and in bad, is to plan for the long-term, not the enticing quick return. That's especially true in times like these, when the Federal Reserve still faces tough monetary policy decisions that could have a major impact on economic recovery.
"We're in a period we've never been in," said Dale Q. Rice, a Vancouver investment manager. "This is a time to be very intentional about what you do."
That's a big challenge, starting with gathering information and choosing a financial adviser to help you make those intentional decisions. It's important to research credentials and ask advisers about how they're paid for their services. While many choose fee-only planners, who don't make commissions on sales of financial products, financial planners say paying commissions makes more sense in some circumstances. And while selecting a Certified Financial Planner offers some assurance of training and knowledge, many advisers without that designation are skilled in their field.
"A lot of people think don't need a financial planner, or that they don't have enough money. I really encourage people to sit and look at their financial picture as early as possible because progress does not happen quickly," said Heidi Johnson Bixby, a Vancouver financial adviser.
Rice, Johnson Bixby, and Dan Foster, all Vancouver financial advisers, agreed to offer their suggestions to readers of The Columbian.
Careful planning, unbiased research, objective advice crucial
By Dale Q. Rice Dale Q. Rice Investment Management Ltd.
If you are like many investors out there, you may be watching key financial markets from a distance, still unsettled by the downturn of several years ago and left wondering about your investment strategy. This is not the moment for you to be passive. Now is a great time to assess your situation, explore the current landscape, and make sure you are capitalizing on available opportunities so they don't pass you by.
Following are some questions investors have been asking recently:
• Is it time to re-evaluate my approach to investing and how much should I keep in cash?
• What is a proper balance of stocks to keep in my portfolio in light of the Great Recession and the current market rebound?
• With low bond market yields and lackluster CD and money markets rates, which investments would be more advantageous without adding more risk than I want to assume?
Make sure you don't let unanswered questions negatively affect your future. Arm yourself with an investment strategy that is appropriate for the times. This requires careful planning, access to unbiased research and objective advice.
You can acquire this information yourself or seek an investment adviser for help. But, make sure you do understand your financial needs for your desired future, your risk tolerance, and ultimately your financial objective. You need to know when you have arrived at your financial goal that you do not take on more risk than needed.
Many decide to do nothing financially and keep things as they are currently. Others decide to put 25 percent of uncommitted investable assets into the market, wait a while, then put in another portion, and so on. Still others decide to put it all in now and hope for the best.
What should you decide? The first step is to do something intentionally. Just make sure that step is the right one for you.
Dale Q. Rice owns Dale Q. Rice Investment Management in downtown Vancouver. He previously was the president of Northwest Investment Services, a subsidiary of Northwest National Bank. That company was known as Northwest Investment Services and was established in 1993. He is a member of the Vancouver School Board.
Know what you want out of your investments before you proceed
By HEIDI M. JOHNSON BIXBY Johnson Bixby & Associates LLC
Don't you wish the proverbial crystal ball existed? It would help make decisions and answers to questions like "Is the stock market going to crash again?" easier to answer.
Understandably, the roller-coaster ride of the last decade and the lack of a crystal ball have investors questioning how they should proceed in the midst of ongoing uncertainty. If you are on the fence about what you currently see happening in the stock market and unsure about whether to jump in or stay away, there are a few guidelines to keep in mind.
Goals and time frames
Begin by evaluating your goals and the length of time before you hope to realize them. Being clear on your time frame for retirement, college education funding, remodel projects, car replacement, travel plans, home maintenance, etc. will help you determine whether how and if you should be investing. If you will need the funds within a couple years, you're best off using savings, money markets, CDs or other relatively secure instruments.
For this reason, we position clients who are currently receiving income from their portfolios with enough assets in cash to provide income for a year or two, so they aren't dependent on short-term market performance. Keep in mind, even if you are drawing from your investments for income, you are only going to be drawing a portion of your assets. The rest of your portfolio likely has a lengthy time frame and should be invested appropriately.
What does investing appropriately for the long term look like? One of the most important things to do is to diversify. A well-diversified portfolio should hold a mix of stocks and bonds, large and small companies, U.S. and foreign, and if appropriate, alternative investments. At any given time, your portfolio will include some holdings that are stellar and some that underwhelm. That's OK -- it just means you're spread out nicely among a variety of asset classes.
If you are watching your portfolio every day or even every week, stop. Unless you are an investment manager or a day trader, investing is not a short-term endeavor. Some people find that they don't have the discipline to stick with their game plan through the market's ups and downs. In that case, the perspective offered from working with a trusted financial planner or investment adviser who can help you stick with your game plan could be helpful.
There will always be market ups and downs, and there's no way to forecast when the next high point or low point will occur. It's been shown in several studies that a majority of individual investors garner returns that are significantly lower than what the market has averaged over time. This has everything to do with the natural emotions that people experience during times of market volatility, causing individuals to change their investment allocation out of fear. Fear of the market going down as well as fear of it being high.
Don't try to time the market. Once you've settled on an investment strategy that meets your goals and time frames, don't change your course without good reason. Maintaining a portfolio allocation that is appropriate to your goals and need for income is the key to long-term success.
Heidi M. Johnson Bixby is the owner of Johnson Bixby & Associates in Vancouver. She began her financial planning career in 1991 and received her certified financial planner certification in 1997. Johnson Bixby holds a bachelor's degree in business with an emphasis on financial planning from Marylhurst University in Portland. Heidi is the current chair of Columbia Springs, a Vancouver nonprofit group.
Common-sense strategies can help weather market uncertainties
By Dan Foster, Foster Wealth Advisors
The markets have been defying gravity for most of 2013. The S&P 500 is up over 15 percent since the start of the year, as of May 20. Many investors wonder, can it go higher? Is there a major correction looming around the corner?
These are all vexing and emotional questions that I encounter every day from clients. The key is to know why you are investing. If it is to achieve the ability to retire or make work optional, then you are like most investors.
Planning for retirement can feel overwhelming, particularly with headlines warning of market volatility ahead. If you are 10 years or more away from retirement, you may feel reassured in your ability to weather a financial storm. But if you're nearing your exit from the workforce, the prospect of a hit to your retirement savings just as you're beginning to rely on it as an income stream can be intimidating.
Emotional snap decisions are rarely helpful and should be avoided. There are a few strategies to help you manage your nest egg for retirement in the midst of a fluctuating economy.
• Think long-term about retirement
It's hard to resist being influenced by economic news and events, but the key is to let rational thinking rule your decision-making when it comes to money. For example, if you experience a bad day at the office and you're eligible to retire, you may decide to retire early. But taking a deep breath or sleeping on it will help you better think about the big picture and usually leads to a better solution. Thinking through each financial decision carefully, and getting objective advice from someone you trust, will empower you to make the best decision for your future.
• Don't become engrossed in day-to-day market activity
This one thing is certain: markets rise and markets fall. If you are planning to retire, or are in retirement, now is not the time to try and beat the market at its own game. To minimize the impact financial swings might have on your retirement, determine your appropriate risk tolerance and stick to it. You can always readjust you're your portfolio, but try not to react in a panic at the sight of a market downturn.
• Focus on the forest, not on the trees
As the markets go up and down, it's easy to become too focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio. Although only you can decide how much investment risk you can handle, if you still have years to invest, don't overestimate the effect of short-term price fluctuations on your portfolio.
• Don't count your chickens before they hatch
As the market recovers from a down cycle, elation quickly sets in. If the upswing lasts long enough, it's easy to believe that investing in the stock market is a sure thing. But, of course, it never is. As many investors have learned the hard way, becoming overly optimistic about investing during the good times can be as detrimental as worrying too much during the bad times. The right approach during all kinds of markets is to be realistic. Have a plan, stick with it, and strike a comfortable balance between risk and return.
Dan Foster is president of Foster Wealth Advisors, a private wealth advisory practice of Ameriprise Financial Services Inc.. He has worked in finance since 1983 and is a certified financial planner, with a focus on retirement and estate planning strategies and employee stock options. He has a bachelor's degree in accounting from the University of Minnesota.