Like Humpty Dumpty on his precarious perch, numerous investors have watched their nest eggs take a great fall as the recession has taken hold.
Anyone with any significant money invested in the stock market over the last two years has watched financial results with dread. From their peaks on Oct. 9, 2007, the Dow Jones Industrial Average and the S&P 500 index dropped 54 percent and 57 percent, respectively, during the next 17 months.
The result is thousands of people facing more sparse, or even significantly delayed, retirement.
Even if the nest egg looks scrambled, all is not lost. Options exist for those who have some time before retirement, and for those who are willing to up their risk tolerance. Building up saved assets, however, takes effort, and likely a few risks.
Thinking outside the stocks
When the stock market as a whole takes a dive, it's common for investors to look for other investment vehicles.
Real estate is one area that usually gets a lot of attention in a down market, but Waddell & Reed Managing Partner Andy Stewart said real estate investing is not getting the same glowing reviews it received after the technology bubble burst earlier this decade.
"There are some times when asset prices will decline in real estate," Stewart said. "And it's not as liquid as some other investments - you can't just decide you're going to sell it one day and get your money out of it the next. But it may be a good time now to look at some of those opportunities to buy property at a discounted price."
Another option that has seen a recent uptick in popularity is foreign currency exchange - selling U.S. dollars for other types of currency and vice versa as exchange rates go up and down. For example, one Euro is worth more than $1.38 as of June 16, up from $1.29 in mid-February.
An emerging wealth-building alternative is microfinancing.
MicroPlace, a subsidiary of online auction site eBay, offers individuals the chance to invest as little as $20 in small loans to potential business owners in poverty-stricken areas. The site advertises up to 6 percent return on investment and says that no borrower to date has defaulted on a loan.
For some investors, the key to increasing savings may lie in finding as much money as possible to put toward future needs.
While some families need an additional income source to make ends meet amid the recession, Stewart said an extra job - or a self-imposed belt tightening and cutting of personal expenses - can provide capital for more high-risk investment options.
"I think it's been a good opportunity for investors to look at their goals and see what's most important to them. Is it retiring on a certain day, and if so, does that mean we need to start setting aside money now and living on less? Do we need to pick up a second job?" Stewart said. "That extra invested money gives us an opportunity to capture the growth of the economy - when the market goes up, it won't have to go up as much to recapture that investment."
Stewart cautioned, however, that even if working with supplemental income, investors shouldn't stray too far from their risk tolerance level.
"If someone is retired and has typically been a conservative investor ... it's probably not in their best interest to put all their money into a high-risk international fund," Stewart said. "It's not the time to go 100 percent into a China fund or jump into real estate. Find something that still fits in the overall investment picture."
Taking stock of the sectors
Even if an investor is wary of venturing into alternative investments, as the saying goes, you can't make an omelet - or financial gains in the stock market - without breaking at least a few eggs in the investment basket.
Robin Walker, founding partner of Springfield-based Walnut Capital Management, said that while it's impossible to make general suggestions about specific stocks or specific groups of stocks, there are some basic tenets that hold true for the market's 10 major sectors.
"In the last six to nine months, companies that sell things that people needed - consumer staples - have done better than companies that sell things that people have wanted, or discretionary items," said Walker, a 28-year industry veteran.
The typical next step in the cycle, he said, is for market-performance strength to move to the discretionary areas and then into consumer durables - items that have a longer lifespan, such as furniture and major appliances.
OppenheimerFunds and other national brokerage houses also have recently stated that technology could perform well in the next several months, while energy and utilities may have peaked for the moment. But Walker was quick to note that relying on investments, or lack thereof, in any one sector is a bad idea.
"I'm not a big believer that you leave any sector completely," Walker said. "But as a sector goes up in price, it's prudent to sell into that strength. The only way that discipline doesn't work is if prices never get cheap, and that's never happened yet."
He also advised against buying and selling individual stocks or groups of stocks on a daily basis in an attempt to capitalize on day-to-day volatility.
Eric Peterson of Springfield-based Peterson Wealth Advisors also advised against looking for a quick fix for lagging portfolios.
"When I'm dealing with a client's money, I have to look at some of the trendy things out there and say, 'I don't think that will be the panacea,'" Peterson said. "That's not saying that occasionally you won't hit it big. Look at the lottery - someone will win millions of dollars, but you don't hear about the millions of people who bought a ticket and didn't win anything."
And while Peterson noted that some investors have been wildly successful at short-term trading - which carries a higher level of risk - he noted that day trading isn't a good fit for everyone.
"Day trading is extraordinarily difficult, and it's excruciatingly difficult right now," he said. "Some of the best minds on Wall Street continue to say they're perplexed by this market, and now is not necessarily the time to all of a sudden try to trade in and out of individual stocks if you're not very close to the fundamentals of that company."
Stay diverse
Regardless of which investment vehicles are chosen, focusing too much on any one type of investment can be the deathblow for a strong portfolio.
"They always say in economics that there's no such thing as a free lunch, and I agree with that. But diversification is as close as we get," Walker said.
Still, diversification isn't a cure-all for market downturns. Walker said even people who were diversified in several types of stocks and bonds took a serious hit in 2008, which has led many investors to move away from the strategic asset allocation approach - making an allocation plan and checking it annually or semiannually - toward a more tactical approach.
"As those individual sectors move up, you don't wait for an annual or semiannual rebalancing; based on what the portfolio is doing, you reach in there and take some profit when the profit is there," Walker said.
He added that tactical allocation does require a more hands-on approach - but it can pay dividends. "Most of the people who outperformed the market as a whole last year had that tactical approach and took profit when it was there."[[In-content Ad]]
