Up, down. Up, down. Seasick yet? The dips and dives of the markets have even casual investors glued to TVs and market charts. And while any resolution is probably a long way away -- the last time the market went peak-to-trough, it took 17 months -- investors' questions and concerns won't wait.
To that end, we'll be addressing the current movements in the markets, and how they affect you, as the days go on. If you have questions you'd like us to answer, email firstname.lastname@example.org or submit a question here.
Monday, Aug. 15, 5:45 p.m.
Should I Buy Shares of My Company?
Conventional wisdom says it's a bad idea to buy a lot of stock in the company that employs you. But what if it's a screaming buy or seems like the safest choice.
That's what a lot of rattled 401(k) investors are thinking. In the last few days, there has been a significant uptick in trading within 401(k) plans, including to company stock, according to consulting firm Aon Hewitt. Last Wednesday when the market tanked more than 500 points, two-thirds of the transfers in 401(k) plans it tracks went into company stock. So far in August, almost 17% of the assets traded in 401(k)s went into company stock. That may seem small, until you consider that from January through last week, 401(k) assets in company stock decreased by nearly 8% to $16.81 billion. "I think it's opportunistic buying," says Pam Hess, director of Aon Hewitt's retirement research. "After a significant decline, there is a subset of people with larger balances who are moving into company stock."
It makes sense -- workers are worried about the market volatility, have confidence in their companies and recognize a good price. But there are big risks, too. Most advisers recommend never owning more than 5% to 10% in any single security, and company stock can leave workers doubly vulnerable: If the business goes bad, they can lose their investment and their job. On top of that, "the volatility of a single stock is so much higher than the broad market," says Hess.
Some workers may end up owning more company stock this year even without shifting assets if they are among the millions who participate in an employee stock-purchase plan. About a third of companies offer workers the opportunity to purchase up to $25,000 in company stock at an 11% to 15% discount through payroll deductions, according to National Center for Employee Ownership. Most plans base the discount on either the price at the beginning or the end of the offering period. Workers indicate the percentage of salary or dollar amount they want withheld from each paycheck during an "offering period."
And it may make sense to wait, especially if your plan has a "look-back provision," which allows workers to buy stock on either the first day or last day of the offering period. For example, if you had a six month look-back period and the stock went from $50 on Jan. 1 to $40 on June 30, you could buy the stock at the lower of the two prices. "If the fiscal year ends during this volatility, it could be a huge benefit if stock prices are coming back," says Loren Rodgers, executive director of the center. But, he says, even without it, "There's always a benefit if you can buy at the discount."
Some plans even allow employees to buy the stock at its lowest price during the look-back period, says Joan Bloom, senior vice president of Fidelity Stock Plan Services. And that could work out very well for healthy companies whose stocks temporarily dropped during the current volatility. Another silverlining: if the price temporarily drops, the employee gets to buy more shares for the same amount of money. For example, say you decided to set aside $1,000 a month for shares, and the stock price drops from $100 to $85, you'll get more shares for the $1,000.
By Jilian Mincer
Saturday, Aug. 13, 5:45 p.m.
Sorry You Went to Cash?
So you cashed out. And now that the Dow ended last week with two straight days of triple digit gains, you've probably been kicking yourself since Friday's close, wondering what you're going to do come Monday morning.
You're not alone: Plenty of investors moved to cash early last week when the market first cratered. For example, U.S.-domiciled equity funds saw net outflows of $14.4 billion in the week ending Aug. 10, according to Lipper -- the biggest wave of net redemptions since May of 2010. Some even got the timing all wrong, locking in losses for the year instead of avoiding them.
But it may be too soon for seller's remorse, say experts. The new U.S. debt deal and the escalating sovereign debt crisis in Europe could mean the worst is still coming for stocks, says Jonathan Satovsky, chief executive officer of Satovsky Asset Management in New York. On top of that, some crashes are drawn out for weeks or months, with occasionally temporary rebounds -- making market timing extremely tricky. In the last downturn, stocks lost 7% on Sept. 29, 2008, but didn't bottom out until March 2009 -- six months later. "We're going to be in an extraordinarily volatile period," says Satovsky. "Where you have to brace yourself for what just happened in the last couple of weeks for the future."
Of course, other investors have had better luck. Last week, many investors made significant moves out of equities in their 401(k) plans on the days when the stock market saw big losses, and they moved money into stocks on days when the market rallied, according to research from Aon Hewitt. Meanwhile, many pros are abandoning their buy-and-hold approaches: About two thirds of advisers surveyed this spring by insurance company Jefferson National said they planned to use "tactical management," (a fancy term for market timing) more often. But as the last few weeks have shown, it can be hard to get those moves exactly right. "They're never going to be able to pick the exact low or the exact high," says Andrew Goldberg, U.S. market strategist for J.P. Morgan Funds.
For investors regretting their exit from the market, it's not too late to get back in. After all, the Dow Jones Industrial Average is still down about 1,500 points, or about 12%, from the high it reached in late July, says Richard Meyer, senior wealth adviser with V Wealth Management in Overland Park, Kansas. For investors who went to cash and missed the rally, Meyer recommends re-investing about half the money they want to allocate to stocks for the year this week, and invest the rest over the next few months.
Others say that if you've found yourself making too many moves lately, it's time to re-evaluate your risk tolerance, revise your long term plan and stick to it. "Investors who have the guts to stay invested and stay balanced today I think it will pay off in the long run," says Goldberg.
By Jonnelle Marte
Friday, Aug. 12, 3:40 p.m.
Are We Out of the Woods Yet?
Investors breathed a sigh of relief as U.S. markets rallied for a second consecutive day on Friday, taking heart at positive retail sales for July and shrugging off a sharp fall in consumer sentiment. But despite the rally, many market experts say we're still a long way from pro-longed recovery and to expect more turbulence ahead. Some economists still fear the U.S. is heading inexorably toward a double-dip recession: Economist Nouriel Roubini warns that the risk of a global recession is now greater than 50% and, according to a survey by The Wall Street Journal, more economists now see U.S. entering a double-dip recession within the next year: 29% versus 17% just a month ago.
To prepare for more trouble ahead, some investors are dumping stocks for bonds and cash. "Don't own equities or preferred stock," says Mark Grant, managing director at Southwest Securities in Dallas, Tx.. "Stay in the senior debt of industrial companies or U.S. Treasurys." He believes a European debt crisis would be worse than the 2008 U.S. financial crisis. David Hefty, CEO of Hefty Wealth Partners in Auburn, Ind., has exited all equities and has no regrets -- despite more bullish analysts feeling vindicated as U.S. stocks rallied Friday. He believes the U.S is in the midst of a secular bear market with 10-15 years to go. "Timing the market is impossible," he says.
Other bears are betting on stocks overseas. Andrew Schiff, an investment consultant with brokerage firm Euro Pacific Capital in New York, says he leans towards conservative dividend-payers in countries that have strong currencies. "Why would you buy a fixed-income bond if you can buy a stock that pays a dividend?" Some of his top stock picks include Australian communications company Telstra Corp., which has a dividend yield of around 10%. He also recommends Wajax, a Canadian heavy duty equipment distributor with a dividend yield of around 6%. "The dollar been held up by a huge effort around the world," he says. "Once those props are removed the dollar could fall precipitously. Dividend stocks are the bread and butter of our strategy," Schiff says.'
For investors in international funds with exposure to France, in the midst of its own banking crisis, analysts advise against panic selling. French stocks account for about 14% of an average European equity fund group and 9% of a foreign large cap equity fund, according to Morningstar mutual fund manager Karin Anderson. Given those not small percentages, she says, "It's not the time to reorganize your entire portfolio into something else." Erin Davis, analyst with Morningstar, prefers U.S. to European financials, but she also recommends holding tight for now. "They are over-leveraged, not as well capitalized and they aren't nearly as far through their write-downs as American banks," she says. "But there is a lot of uncertainty priced into the stocks right now."
By Quentin Fottrell
Friday, Aug. 12, 2:10 p.m.
Financial News You Missed
With stocks now in slightly calmer territory today -- the Dow is up more than 100 points -- it's OK take a market break. After all, watching the market's unprecedented four-day run of more than 400-point moves has been, well, intense. And really hard to look away from. But believe it or not, even during all this upheaval, other stuff kept happening. Here's some of what you missed:
Corporate earnings. "We've completely forgotten about second quarter earnings season," says Brian Sozzi, an equity analyst with Wall Street Strategies. Overall, it's going pretty well: Nearly 70% of S&P 500 firms have beaten earnings-per-share estimates, according to Zacks Equity Research. Of course, earnings season is almost always a parade of not-terribly-surprising upside "surprises." But when the dust settles from the past week, Sozzi says, "We might go back to second quarter earnings and say, 'Hey, things weren't as bad as they could have been.'"
In keeping with this morning's "not too shabby" retail sales data, retailers like Macy's (M), Kohl's (KSS) , and Nordstrom (JWN) have done surprisingly well, Sozzi says. "These companies were able to pass along price increases with success," he says. It's not all good news, however. Family Dollar's (FDO) recent report highlighted again how dependent sales at the low end are on the paycheck cycle, and Office Depot mentioned that sales in California were weak due to state government cutbacks, Sozzi says.
Other economic data. While you've been obsessing over the market, Robert Johnson, Morningstar's associate director of economic analysis, has been sifting through recent data releases, attempting to strip out the effects of the earthquake in Japan, a cold, wet, May, and higher gas prices to get a clearer picture of the health of the consumer economy. "The data is pretty clear that we had a soft spot in the spring, and June and July were months of improvement," Johnson says. He says second-quarter consumption, GDP, and inflation numbers were seriously distorted by the drop in auto sales and auto production following the earthquake, and as the industry recovers from that disruption, industrial production data set to come out Tuesday should look pretty decent. The four-week downtrend in initial unemployment claims is also an encouraging sign, he says. However, he notes that the unemployment rate for people without a high school diploma has risen year over year based on the most recent data, while unemployment has fallen for groups with more education.
The Fed's remarks. Sure, we listened to the Fed statement this week, but did we hear the right things? Sozzi says maybe not. "This statement got spun like you wouldn't believe," he says. While the market apparently took the Fed's willingness to provide more stimulus as good news, the tone of the statement isn't encouraging, he says. "The Fed is saying they're seeing weakness throughout the economy. They downgraded their growth assumptions," Sozzi says. Given the depth of the information the Fed has access to, if they're worried, maybe the rest of us should be worried too, he says.
By Sarah Morgan
Friday, Aug. 12, 9:30 a.m.
Pros Brace For Another Triple-Digit Day
Yesterday's 423-point jump in the Dow Jones Industrial Average marked the first time in the 115-year history of index that it has moved in one direction or the other more than 400 points for four consecutive days, according to the Wall Street Journal. And money managers and advisers don't think the wild ride is over yet. With the Dow up more than 100 points at the open, investors were girding themselves for another wild day.
"Volatility begets volatility," says Adam Grimes, chief investment officer at Waverly Advisors, in Corning, N.Y. "These things do work themselves out, but it would be more unusual for the market to go dead."
In fact, investors should get used to these periods of high-volatility, experts say. They are getting more frequent: Short-term instability or the volatility of volatility itself has tripled over the past 40 years. As causes, experts point to several causes, including the increase in so-called algorithmic trading, in which trades are ordered by computers in high volume. The growing popularity of leveraged exchange-traded funds may also be a factor. The funds, which are designed to magnify the markets' moves in any given day, tend to buy when the markets are rising and sell when they are falling, which can exacerbate gains or losses, according to the Journal.
Meanwhile, with the debt crisis in Europe and political brinksmanship stateside, there is no shortage of news events to push the markets in one direction or another. Given that environment, investors can expect to see big market swings for months, says Monty Guild, chief investment officer at Guild Investment Management in Los Angeles, Calif. His advice: "Be patient and wait for stocks to hit your prices, because you're going to get them. Yesterday was not the end of the correction."
By AnnaMaria Andriotis
Thursday, Aug. 11, 6:10 p.m.
What Do Futures Really Tell Us?
The wild swings of the past week have kept many investors tracking market news a lot more closely than they usually do, and the first round of headlines every morning often focus on futures. But whether they're up or they're down, what do stock futures really tell us?
Futures essentially give investors a preview of what's likely to happen when the U.S. stock markets open at 9:30 EST. "If futures are up 1% it's an indication that the market should open 1% higher," says Paul Nolte, the managing director of Dearborn Partners.
The original futures were developed as a way for farmers to lock in a reasonable price now for crops they'll harvest later, says Brian Overby, an options analyst for TradeKing. Two parties negotiate a price for a product at some point in the future. They don't exchange the money then, but (unlike an option) they're obligated to make the trade at the negotiated price on that date, Overby says. The price of a stock-index future is generally very close to the price of the actual index, and because these futures start trading before the stock market opens, they give an early indication of what should happen when it does, he says.
Under normal market conditions, the opening moves of the S&P 500 should follow what index futures have done almost exactly. Thursday morning, however, the picture was a little cloudier. "When I looked 6:00 central time, futures were pointing to maybe a 100-point gain," Nolte says. "When I got to the office at 7:30, before the jobless claims numbers, we were down 100. About 10 minutes before the open, futures were indicating up 100. So in the span of about two hours we went from up 100 to down 100 and back again," he says. That doesn't mean futures were wrong, Overby says. It just shows that, like the action during normal trading hours, pre-market trading has been more volatile than usual, he says.
Even at the best of times, however, futures only give you a snapshot of that moment's market sentiment, says Kevin Mahn, the chief investment officer for Hennion & Walsh. "All it tells you is the sentiment that's going into the current market from the previous day's market, and whatever's been going on overseas," Mahn says. As new information comes out, that sentiment will change, he says. It's one piece of information that can help an investor get a sense of what the market will be doing, but it's just one piece of information, he says.
By Sarah Morgan
Thursday, Aug. 11, 3:35 p.m.
Time to Take Gains?
The Dow is up nearly 400 points this afternoon, and while investment pros say it's a little early to celebrate, some recommend unloading or cutting back your exposure on some of your poorer performers and using those gains to buy higher-quality stocks on the next dive.
Paul Nolte, managing director of Dearborn Partners: "Crack open a bottle of champagne and drink it, quick, before the markets go flat...Given this type of market it's hard to make any broad judgments. Everybody hates to sell when the market's down 300 points, so take this opportunity to switch out of some of your poorer names and upgrade the portfolio to some better names. You want to be buying the higher-quality multinational companies with good balance sheets and good income flows, that aren't necessarily going to be impacted as much by the turmoil that's going on in either the economy or the financial markets. Look at companies that have a lot of cash, good income streams, and a decent dividend that will help you weather the storm."
Tom Samuels, managing partner of Palantir Capital: "It's probably a little premature to get really bullish on these up days, but it's a great opportunity to reposition a portfolio. Last year the best performing sector of the market was smaller companies that lost money, and not by a little bit. I think the theme of the next few years is going to be high-quality stocks outperforming low-quality stocks. We could see investors positioning away from companies that can't sustain their own growth. More than a low P/E, I think it's cash generation and low debt or no debt that are going to be important. If you haven't cut back your high-yield bond exposure yet, you ought to be doing that aggressively. By definition, junk bonds are issued by companies that are on the low quality end of the spectrum, and in the relatively harder economic times that are coming, those companies will be disadvantaged."
Steven Roge, portfolio manager at R.W. Roge: "I can't imagine there's too many gains to be taken off the table right now, with the past week. If you have a well-balanced portfolio, I would sell some bonds and buy some equities here. You can rotate your portfolio, what I call upgrading it, going from riskier small cap stocks to more grounded large cap stocks. Small caps are going on 12 years now of outperforming large caps...If you think to yourself, I'm going to pull out now and get back in when the market's lower, a mental exercise we do with clients is to make them write down when they'll get back in. It becomes tangible at that point, it becomes a real plan."
Thursday, Aug. 11, 2:19 p.m.
Cash for Gold: Futures Exchange Hikes Collateral
Gold fell 1.4% to $1,760 an ounce Thursday afternoon after the world's largest exchange for bets on the metal said it will require larger cash deposits from traders.
CME Group, whose trading volume reached an all-time high Wednesday, said in a press release the measure was part of a "normal review of market volatility to ensure adequate collateral coverage." One interpretation of that is that gold and other assets have traded so frantically of late that the exchange is worried about the possibility of some customers being wiped out. When that happens, customers can end up owing money, and their losses can become losses for the exchange.
Like margin accounts for stocks and bonds, futures accounts come with two broad collateral requirements. There's an initial requirement, which customers must meet before they place new trades, and a maintenance requirement, which comes into play if trades move against customers. If gold's price was to fall sharply, for example, some traders would have to deposit cash or securities to meet their maintenance requirements, or else unwind their gold trades, possibly putting more downward pressure on the metal.
CME Group said it will increase initial and maintenance requirements for bets on certain foreign currencies, stock indices and Treasury bonds effective after the close of trading Thursday. Among the affected products are those linked to the S&P SmallCap 600 index, the Mexican peso and interest rates on Treasury bonds. The exchange also tightened requirements on numerous gold products. For example, maintenance deposits for Comex 100 gold futures will rise to $5,500 per contract from $4,500 per contract.
Many investors view gold as protection against rising consumer prices and unstable currency values. Aided by the rise of exchange-traded gold funds, which make investing in gold easy, the metal has multiplied more than six times in price in a decade. Gains have accelerated in recent weeks, but higher margin requirements will force some traders to be more cautious with the amount of leverage they use.
Although the new requirements pressured gold Thursday, leverage is likely less important to traders than broader sentiment favoring the metal.
By Jack Hough
Thursday, Aug. 11, 11:24 a.m.
Should You Adjust Your 401(k) Contribution?
With many investors receiving their paychecks today and tomorrow, it's a good time to ask: Do I have enough savings to handle another economic downturn? And if not, should I cut my 401(k) contribution rate to help shore up my emergency fund?
Of course, how you answer these questions depends largely on where your think this roller-coaster market is heading -- the Dow was up more than 200 points this morning, after falling more than 500 points yesterday. But before you rush to make any changes, financial advisers recommend revisiting your monthly budget (or creating you if you haven't already) to see if there are other ways to cut costs and increase your savings without reducing your contribution rates. If you do decide to make a change, ask your employer how to access your 401(k) account online and how many free adjustment you can make a year (the vary from employer to employer). After making the adjustment, check the correct amount has been deducted from your next paycheck.
Cut your contribution: If you have neglected your savings, then definitely cut back on your 401(k) contribution, says Jeff Seymour, managing director at Triangle Wealth Management in Cary, N.C. "Classical financial planning calls for 6 months of living expense to be stashed in a taxable account in case hell freezes over and you lose a job, but 9 months is my rule of thumb." He believes the country is heading toward a double-dip recession. "This is one of those times in your life that you need to make a very strong defense," Seymour says.
Increase your contribution: If you are over five years from retirement and you don't mind taking risks, increase your contribution to take advantage of cheaper stock prices, says Pete D'Arruda, president of Capital Advisory Financial Group, also based in Cary, N.C. At the very least, he says you should put in enough so your employer matches your contribution dollar-for-dollar. "That's free money," he says. "Whatever you do don't cut your contribution. This could be a long-term gift to get a lot more shares for a lot less money."
By Quentin Fottrell
Thursday, Aug. 11, 8:26 a.m.
3 Strategies For Selling
As investors brace for another rocky day in the markets, it's only natural to think about whether to join the hoards of sellers, and if so, how. But creating an exit strategy is particularly tricky in this environment, when sudden market movements can turn losses back into gains (and vice versa). Still, better to start with a plan, advisers say. For investors planning to sell, here are three ways to do it:
Sell what's peaked, then the dogs
Aaron Schindler, certified financial planner at Wealth Advisory Group LLC, New York: I would only sell if you need cash to get through the next nine to 12 months. If that's the case, I'd start by looking for stocks with decent profits, growth stocks that have grown so significantly that you believe really have run their course even if they're 5% to 10% off their peak. I would look at tech portfolios to see what's run. Then I would turn to the dogs -- stocks where you don't think there's much of a future and that had been losing for a while before this recent downturn began.
Take tax losses and focus on dividends
Gary Schatsky, president of ObjectiveAdvice.com, New York: If you don't have too much equity exposure to begin with, there's an opportunity to see if you can improve returns by maintaining exposure but realizing a tax loss. In general, you want to hold on to dividend paying stocks. But if they got hurt in the downturn and there are other comparable dividend payers, take the loss and buy the others, so while you're sitting around waiting for rebound you're locking in tax savings.
Sell the wants, hold the needs
Mark Lamkin, CEO of Lamkin Wealth Management, Louisville, Ky.: It's a basic concept of wants vs. needs. We're going into some uncertainty in the economy and I think consumers will hunker down more. If you own shares in companies that cater to peoples' wants, look for an alternative. Multinationals are still exporting more than ever and those exports will persist because of the cheap dollar, so they can be a safer hold with good cash flow. Small- to medium-sized businesses aren't getting that advantage since they're selling here.
By AnnaMaria Andriotis
Wednesday, Aug. 10, 4:36 p.m.
'Not Too Late to Buy,' Says Gold Bull
The metal's hit another record high. Robert Wiedemer is still buying.
The stock market closed down more than 500 points. Gold, on the other hand, set another record high, at $1,790 an ounce. It's a quandary for investors: Many of the metal's biggest gains are in the past. But with the uncertainty in the markets, maybe there's more to come?
Quite a bit more, says Robert Wiedemer, managing director of Absolute Investment Management, a wealth management firm in Bethesda, Md. He continues to add to his clients' exposure to the yellow metal. Wiedemer says he expects gold to post more gains throughout the year and to do so again next year, as long as investors continue to see the metal as an antidote to market volatility and a safeguard against long term inflation.
Another sign the gold run might continue: Yesterday Federal Reserve officials hinted they would consider additional measures to help spur the economy. If those measures involve printing money and buying Treasurys think "QE3" -- those steps could contribute to long-term inflation concerns, says Wiedemer.
To be sure, not everyone is as bullish on gold. Some advisers are using the new price highs to take some profits and buy beaten-down stocks. Meanwhile, Wiedemer, who has raised clients' allocations to precious metals to 22% in the last few weeks, is using exchange traded funds like the SPDR Gold Trust (GLD)
By Jonnelle Marte
Wednesday, Aug. 10, 2:30 p.m.
Why You Can't Trade Now
As stocks keep falling, mutual fund investors looking to bail are out of luck. Unlike investors in individual stocks or exchange-traded funds -- which can be bought and sold throughout the day at real-time prices -- mutual fund trades don't go through until after the market closes at 4 p.m. EST, with prices set at the day's close. If, for example, you place an order to sell a mutual fund at noon, when the net asset value is $15, the trade won't be executed until the end of the day at which point, the price could be higher or lower than when you pulled the trigger.
This means millions of antsy fundholders are stuck watching the markets rise and fall, and there's nothing they can do about it. Some 51 million households own mutual funds, according to the Investment Company Institute, a mutual fund industry trade group. Mutual funds are also the investment of choice for 401(k) plans, which hold the lion's share of Americans' retirement assets.
For investors who are determined to sell (or buy), doing so as close to the market close as possible will offer a better idea of the final price. However, many investing pros say regular investors in mutual funds and 401(k)s shouldn't be worried about day-to-day swings. "The stock market is for money you're not using for 15 years," says T. Rowe Price Financial adviser Stuart Ritter. Money you need within the next two years or so shouldn't be in stocks to begin with, he says.
By Jilian Mincer
Wednesday, Aug. 10, 1:05 p.m.
The Safe Haven That's Up 14%
Savings accounts are paying next to nothing, but next to stocks, dollars are doing great.
Most savings accounts pay less than 1% right now, and rates won't increase for at least two years, the Federal Reserve suggested yesterday. Why? It wants to nudge savers into following its A-B-C investment plan: anything but cash. The idea is that if savers buy stocks or real estate instead of sitting in cash -- or even better, spend -- the economy will grow, markets will recover and all will end well.
But investors should consider carefully whether it's a good idea to follow a financial plan hatched in Washington, D.C.
The Fed's goal at the moment isn't to protect savers. It's to use the resources of savers to make up for the excesses of borrowers. The plunge in stock and house prices in recent years wasn't a return to historic levels of affordability, in the Fed's view. It was a problem that needed to be fixed, fast.
"Don't fight the Fed," you might have heard. Indeed, U.S. stocks roughly doubled in price in two years after hitting their March 2009 lows. But savers who've been fighting the Fed since then aren't doing too badly, if stocks are the asset they covet, and they're waiting for prices to come down. Relative to the dollar, savings accounts have returned next to nothing this month, but relative to U.S. stocks, they can buy 14% more than they could on Aug. 1.
Gold has done even better of course, and if I had to guess, I'd say it will soon top its inflation-adjusted record of nearly $2,400, set in 1980. But gold is no safe haven. It's a speculative instrument with no income-producing ability and little industrial use to fall back on. Grab gains if you're nimble but don't fall in love with the stuff.
Fed-fighters should stand firm for now. There are better bargains in store for stock buyers, I believe. That's not to say investors should be out of the market altogether. But they should hold a generous pot of cash, and not be bothered by the puny stated interest rates on their accounts.
By Jack Hough
Wednesday, Aug. 10, 11:50 a.m.
Is Volatility Here to Stay?
Markets that swing hundreds of points a day don't make anyone feel safe. Worse, financial advisors say that kind of volatility is here to stay -- and worrying about it is only making it worse.
Sheryl Garrett, founder of the Garrett Planning Network, a group of fee-only financial planners: "A a 3% or 4 % change in a given day is definitely not normal, but I anticipate we're going to return to something more normal, but still volatile, of 1% to 2% a day. For most people, that is still a significant swing. I wouldn't stress out about it if you're dollar-cost averaging. If you're taking money out, that could be bad timing. But if you're putting it in, volatility is your friend. I would encourage people to focus on accumulating shares rather than looking at the dollar figure on your statement."
Lynn Ballou, managing partner at Ballou Plum Wealth Advisors, Lafayette, Calif.: "We need to put Dramamine in the national water supply at this point. As I've told clients, volatility is the new reality. We're in an information age where there's no filter. Everything is right this minute and there's a huge sense of immediacy. We get a lot of short-term bursts of fear that create a lot of bad decision making. I'm not saying this market doesn't have fundamental problems. We could talk for hours about that."
Marilyn Capelli-Dimitroff, president of Capelli Financial Services, Bloomfield Hills, Mich.: "My opinion is that yes, the volatility will continue because the acceleration and the range of ups and downs is so extreme that it's likely to be self-perpetuating. Long-term investors don't need to do much. Markets may go lower from here, but they won't stay there forever. If you're adding to 401(k)s and other automatic investments, you should love these situations because you're buying at prices now that in a decade will look great."
Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards: "We're waiting for more on the 'Gang of 12' [senators who will be tasked with reducing the deficit]. There's a lot of uncertainty about are we moving into another recession. We're not sure. Jobs are still growing sluggishly, but they're holding on. We're not sure what will happen with the deficit, since we kicked the can down the road. We're going to see more of what we saw Tuesday. Hope. Skepticism. Consumers need to go back to their plan if they have one. If they don't have one, they need one -- and not just an investment plan, a financial plan, a road map to what you are going to need, when."
By Kelli B. Grant