January is usually the time for resolutions, and for investors it’s usually a time to look ahead and determine where growth opportunities lie. This year, both individual and institutional investors alike—novices and Wall Street pros—are faced with unfamiliar territory littered with doubt and anxiety. Although many individual investors are not quite ready to jump back into equities, indications are that some experienced long-term investors are willing to take advantage of some “bargains” among the blue chips and solid corporate earners.
Here’s what some leading experts are saying:
- If we look at the monies a company gets to keep after paying its expenses, the market represents the best value we have seen since the ’80s. Some “blue chips” with first rate earnings forecasts have seen their stock fall to bargain basement rates. The old Wall Street adage that “a rising tide raises all boats” is just as applicable in times of decline as it is in periods of growth. Established, respected companies in the health care sector, the energy sector, and the technology arena have all seen their stock prices fall to their lowest valuations for decades. We can all do the math on various stock valuations, but concerns remain. After all, nearly 11 years of gains have been decimated over the last year. Worries persist that the downward slide of 2008 could continue into 2009, exacerbated by the possibility of more global economic woes or by further ramifications from the credit crisis.
- If only we had some means to determine when the worst was over, the decision to jump back in would be easy. Until we do, investment experts who believe it may be time for selective buying are suggesting that investors consider a few salient points:
- Avoiding stocks completely is likely to cost investors more than the risk associated with building, and sticking with, a diversified portfolio. Stocks remain the only investment vehicle with the potential for sufficient growth to allow investors to recoup this year’s losses from their retirement savings.
- There are several big name companies with the potential for good future earnings (recession or no). Consult your investment and tax professionals for specific ideas, but consider that utilities, health care suppliers, and some pharmaceutical companies are much less affected by consumer spending slow-downs than companies whose products are truly discretionary.
- More than ever, investors need to create a mix of investment allocations that accurately reflect their tolerance for risk, their short-term or long-term retirement goals, etc. A sound strategy and appropriate investment tactics are crucial in today’s environment.
- If retirement saving is your most important consideration, additional efforts to sock away more in savings is essential. You may have no control over the return you realize on various investments, but you can maximize your efforts to save. More savings may help alleviate your anxiety about the rate of return on your holdings.
- Consider also which sectors might benefit from President-Elect Obama’s plans to stimulate economic development. Obama has earmarked infrastructure projects, clean energy, education and health care (among others) as targets for increased spending. Most experts believe the President-Elect has backed off from imposing immediate tax increases for the wealthy, but that the issue will resurface to address the spiraling Federal budget deficit.
We start 2009 with more questions than answers, but a sense of cautious optimism and an emphasis on logic rather than emotion, raise the real possibility of a better year ahead.