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A Year After Market Low, How Should You Invest?
By Mick
Leach
It’s been
about a year since stock prices hit their low point during the long bear market.
Since then, of course, we’ve seen a big rally, but some of the decisions you
made when the market was at its lowest point may still be affecting your
portfolio’s performance and prospects. So now that we’ve reached the one-year
anniversary of the market bottom, it’s a good time to see where you are today
and how you can prepare for tomorrow.
In looking back at the market depths of a year ago, it’s important to note that
we didn’t get there overnight. In fact, stock indices had fallen about 50
percent since hitting their all-time high in October 2007, which means that
investors had gone through a 16-month downturn. Consequently, it’s not
surprising that many people, tired of seeing gloomy investment statements month
after month, decided to “play it safe” for a while by putting large sums into
fixed-rate vehicles such as Certificates of Deposit (CDs). And a lot of those
CDs had one-year maturities, which means they’re now coming up for renewal.
When you bought your CDs a year ago, you probably did so for their ability to
preserve your principal, but in the process, you made some trade-offs. First,
you accepted a relatively meager income stream, because short-term interest
rates, like those paid on your CDs, were low. And second, you relinquished the
growth potential you might have gotten from other investments, such as stocks.
So now that we’re a year removed from the bottom of a bear market, can you use
the money from your maturing CDs to help you make progress toward your financial
goals?
Actually, now that you may have these maturing CDs coming due, it’s a very good
time to review your overall investment strategy, possibly with the help of a
professional financial advisor. Take a close look at your portfolio. Is it well
suited for your individual risk tolerance, time horizon and long-term
objectives, or do you need to make some changes? Is it too aggressive for your
needs, or too conservative? Is it properly diversified among investments
suitable for your particular situation. ? While diversification, by itself,
cannot guarantee profits or protect against loss, it can help reduce the effects
of volatility and give you more chances for success. Keep in mind that while CDs
are FDIC insured, other investments carry certain risks that you should
understand before investing.
Of course, if you have investments held in a brokerage account, it’s likely not
your only portfolio — you may well be investing through your 401(k) or other
employer-sponsored retirement plan. If so, keep in mind that you probably don’t
want your investments to duplicate those inside your 401(k) account. Instead,
look at your entire investment picture “holistically” and seek to diversify
through all your accounts.
Once you’ve reviewed your portfolio and identified any possible gaps, you can
then consider where the money from your maturing CDs can be used most
effectively.
You probably won’t see any festivities marking the one-year anniversary of the
market low. But you can celebrate in your own way — by embracing available
investment opportunities.
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