Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

Stocks Have You Worried? Here's What You Do

Last Tuesday, USA Today ran a long Page 1 story under the headline "Invest in Stocks? Forget About It."

The story's message was loud and clear: U.S. stocks have risen more than 100% from their March 2009 bear-market bottom – including 25% since October and 9% so far this year – but most retail investors still wouldn't touch them with a 10-foot pole.

And with the Standard & Poor's 500 Index now on a losing streak – it's down about 5% from its April 2 high, according to Bespoke Investment Group LLC – you can bet that this "keep-stocks-away-from-me" sentiment has only intensified.

I mentioned this to Keith Fitz-Gerald, our chief investment strategist, during a private briefing last week.

True to form, Keith quickly said out loud what I had already been thinking.

"BP, those investors are making the mistake of their lives," he said. "In fact, I'll wager that they're actually compounding an already-huge mistake. They missed out on the most-powerful stock market rebound since the Great Depression – and they did that after having sold out at the very bottom of the bear market that preceded it, meaning they locked in some of the most-horrific market losses most investors have ever seen."

If you're in that group, don't fret: You can recover.

In fact, Keith helped me lay out a game plan just for you – one that will let you take charge, put the odds in your favor and even capitalize on approaching opportunities that Wall Street will be slower than you to see.

Let's take a look …

  1. Don't confuse your portfolio with "the stock market": Most folks view the stock market as the Dow, the S&P and the Nasdaq – indexes that tell you how a specific basket of stocks is doing at any given point in time. But your portfolio is a portion of your personal wealth – as well as your long-term plan for achieving wealth and lifestyle goals. Don't let the near-term gyrations of these market indices divert you from those important objectives.
  2. Don't run for the hills: Retail investors often have lousy returns because they act emotionally – or flat out panic – and jump in and out of stocks at the worst possible moment. The upshot: Retail investors average 3.8% a year on their holdings – instead of the 9.1% average annualized return of the S&P 500, according to a 2011 study from DALBAR, a Boston-based research firm. Miss a handful of the best market days and your performance drops out of sight.
  3. Hedge your bets: In one of the earliest Private Briefing columns, Keith recommended that subscribers put 3% to 5% of their holdings in an "inverse fund" – such as the Rydex S&P 500 Inverse Strategy Fund (RYURX). Now you see why: The S&P 500 has dropped 5% from its April 2 high, but this ETF is up 4% … offsetting some of the pain.
  4. Stick with your game plan: If you employ "trailing stops" (we typically recommend 25%), you'll capture profits and minimize losses by taking emotion out of the equation.
  5. Don't ignore income: Dividend income, in particular, is central to portfolio performance. A Tweedy Browne Fund Inc. study concluded with this eye opener: "Over the past 100-plus years, an investment in a market-oriented portfolio that included, most importantly, reinvested dividends, would have produced 85 times (our emphasis) the wealth generated by the same portfolio relying solely on capital gains."
  6. Look at alternatives: Stocks and bonds aren't the only game out there. Look at gold and silver. And use price pullbacks to invest in commodities and other natural resources. They are the fuel for global growth, but prices will rise as demand escalates and already-limited supplies are depleted. Oil is a great example – it's out of favor right now, but long-term prices will only go higher.
  7. Get your shopping list ready: Be opportunistic. Pullbacks give us the opportunity to build our positions in anticipation of future price increases. You should always have a list of stocks you want to buy – including the price at which you'll pull the trigger. Keep some cash around to make this possible. In particular, keep an eye out for companies positioned to benefit from powerful global trends. Cybersecurity is just one example of the trends we're watching and really like.

Keith ended our talk with this final piece of wisdom.

"It's critical to remember: Just because the market is having a bad day, that doesn't mean your portfolio has to," Keith said. "And the opportunity cost of procrastinating – by sitting on the sidelines – dramatically outweighs the risks that come with a disciplined and carefully planned investing strategy."

And we'll be there to help you … every step of the way.

[Editor's Note: Since its launch, Private Briefing has delivered as many as 45 winners. Two dozen of them have been double- or triple-digit gainers–all in just eight months.

With his 24/7 access to stock market gurus like Martin Hutchinson, Keith Fitz-Gerald, Shah Gilani and Dr. Kent Moors, Bill is able to provide Private Briefing subscribers with an inside look at some of their key recommendations.

To learn more about Private Briefing, click here.]

Join the conversation. Click here to jump to comments…

About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

Read full bio

  1. Brendan | May 14, 2012

    Can I yous this section for some advice? As I am unsure how to go about investing outside Australia unless I go through my broker in Perth

    Regards Brendan

  2. John Lostetter | May 22, 2012

    With the banking system in Europe looking like a ponzi mess and US bank not much better I think the market is going to go down another 10 to 20 percent.

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK