'Hunker Down and Ride It Out' Say Financial Planners
Since they're paid to keep their wits about them in times like these, it should be no surprise that financial planners are urging calm as the markets crash around them -- even though they may feel otherwise.
"If I didn't have 150 tax returns to worry about in the last three weeks I might have jumped out the window," quips Lewis Cohen, a planner with
Kaufman Rosenberg & Cohen
in Sherman Oaks, Calif.
A few of the dozen or so planners
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spoke with this week think there's some selective buying to be done in the wreckage of the markets. Most recommend standing pat until the storm passes. None recommend selling.
"It's too late to sell," says Phil Luccock, president of Englewood, Colo.-based
Financially Speaking
, who advises investors to "hunker down and ride it out."
"We were selling three to four weeks ago. If you weren't going to take profits then, what's it going to take?"
"You stick with your guns, whatever those are," adds David Foster of
Foster & Motley
in Cincinnati. "You don't sell just because the market is going down."
As you might expect, planners find the market turmoil of the past few weeks a vindication of the principle of asset allocation -- spreading your money among a variety of sectors and asset classes.
"We're having a good time these days. We steadfastly believed in asset allocation. I have not made any sector bets," says Ben Tobias of
Tobias Financial Advisors
in Plantation, Fla.
Still, there's no getting around the fact that many individual portfolios had bloated technology weightings. The fantastic rise in valuations -- the tech-heavy
Nasdaq Composite
index rose a startling 110% for the 12 months ending March 10 -- could have skewed the balance of even the most prudently planned portfolios. And many investors found it hard to resist putting new money into a sector that never seemed to stop rising. A record $33.9 billion was invested in technology mutual funds in 1999, according to
Financial Research
of Boston. The prior calendar-year record for investment in the sector was $4.4 billion in 1995.
For many investors, the market has rebalanced their portfolios for them, as the Nasdaq Composite index has fallen 34% since its March 10 peak. It is down 18% for the year. In fact, if your tech allocation has fallen significantly, "you may need to bring that allocation back up by buying," says Robert Horowitz of
New England Investment Management
in Stamford, Conn.
But what is the right allocation to technology?
The consensus seems to be about 30% -- roughly the technology weighting of the
index. In fact, Horowitz and other planners say an S&P 500 index fund or a total market index fund tracking the
Wilshire 5000
should have plenty of technology for most portfolios. "I am perfectly comfortable capturing tech in the S&P or total market index," he says.
Foster also eschews tech-sector funds, preferring the S&P 500 or tech-heavy growth funds like
(WOGSX) - Get Free Report
White Oak Growth or
(HACAX) - Get Free Report
Harbor Capital Appreciation.
Cohen, among the more aggressive planners interviewed, said he had been allocating 40% to 50% to tech for clients who could handle the risk, and was "getting 30% to 50% annual returns, sometimes higher."
"But that was last year," he adds ruefully. "In the first quarter, accounts were up 15%, to 25%. As of now, I don't want to know."
He was also the only planner who talked about selling, saying earlier in the week that he was considering paring stakes in
Nokia
(NOK) - Get Free Report
,
EMC
(EMC)
and
Cisco
(CSCO) - Get Free Report
-- "stocks we have held for 12 to 16 months and are still up greater than 100%."
A few planners see the diminished prices of many stocks as a reason to buy, but most aren't enthusiastically sifting through the bargains. "If you haven't done anything and you're sitting on stuff from last year, I wouldn't recommend buying," says Horowitz. Even after the recent sell-off, "you've probably got a huge position in tech anyway."
One dissenter is Larry Howes of
Sharkey, Howes & Javer
of Denver, who says, "If you're going in with new money, that's great." But he warns to expect some losses in the short term. Earlier in the week, he forecast the Nasdaq would drop below 3400, a prediction that came true on Friday.
Yet, he says, "Don't give up on tech. Don't give up on biotech." By year-end he sees the Nasdaq Composite at 5500.
Other planners, though not enthusiastic about buying, thought it could be done strategically.
Marilyn Capelli Dimitroll, a Bloomfield Hills, Mich., planner, likes financial stocks "because of favorable demographics," and is using the
Financial Select Spider
(XLF) - Get Free Report
, an exchange-traded index portfolio composed of the financial stocks in the S&P 500 index. The fund is up 22% since March 10.
Cohen is putting conservative clients into real estate investment trusts and energy and utility companies. (See our recent story on
utilities funds.)
Among tech stocks, Dee Lee, a planner in Harvard, Mass., suggests staying away from dot-coms. She prefers those companies that build out the Internet infrastructure like EMC and
Sun
(SUNW) - Get Free Report
. "Look at the companies that provide the end stuff that gets the consumer to the dot-com," she says.
But Lee's enthusiasm for tech stocks is underwhelming, at best. "Buy
Krispy Kreme
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, the doughnut maker that went public last week," she recommends. "At least there's a product."
Dagen McDowell, Tracy Byrnes, Ilana Polyak and David Landis contributed to this report.
