By DAVID GELLES
dgelles@MiamiHerald.com
“Turn off the TV.”
That’s the advice financial planner Harold Evensky is giving to skittish clients concerned about their dwindling investments amid the financial crisis.
”I know no one likes to hear it, but the answer is, hang in there,” said Evensky, a partner in Coral Gables wealth management firm Evensky & Katz.
By selling stocks now, Evensky said, investors could exacerbate their financial problems. U.S. stocks fell again Friday, ending a volatile week that was the worst for the Standard & Poor’s 500 Index since the 2001 terrorist attacks.
”All investors say I want to buy low and sell high,” he said. “What happens at times like this, in hindsight, is that investors wind up buying high and selling low.”
Nonetheless, the ongoing credit crisis, bank failures and a plunging stock market have conservative investors looking for safer places to park their money.
At this point, they’re not so concerned about making money as just not losing money.
Among the options for those simply looking for security are bonds and certificates of deposit, or FDIC-insured savings accounts. All are very secure, but none pay high interest rates.
Of course, individual investment strategies are case-specific, and what makes sense for a young professional might not work for a retiree. Some investors may need to adjust their portfolios to take care of short-term needs; others may be in a position to wait it out until the market recovers.
”It comes down to identifying your time frame,” said Chip Bender, president of Fiduciary Financial Consultants, a Miami financial advisory firm. “If you’re looking at a two-year time frame, you want to be weighted towards fixed income. For that, there’s only one place to go, and that’s the Treasury.”
For example, short-term U.S. Treasury bills that mature in less than a year are regarded as extremely safe, but they don’t pay much. Longer-term Treasury notes and bonds mature later but offer better yields.
Investors flocking to the safety of Treasury bills last week caused the yield on three-month T-bills to plummet to less than one percent, a sign that investors would rather make no money at all than risk holding investments that might depreciate. The three-month T-bill started the year with a 3.26 yield. By Friday, it had dropped to 0.63 percent.
Muriel Siebert, the Wall Street veteran whose eponymous brokerage firm has several South Florida locations, said investors who need short-term fixed income, such as retirees, should at least partially divest their stock portfolios.
”Sell enough of your stocks and buy municipals, so you have your basic expenses covered tax-free,” she said. Municipal bonds are tax exempt, but have lower yields than Treasury or corporate bonds.
One local investor, Linda Dunn, 59, has begun following a more conservative investment strategy. Dunn, a recently retired schoolteacher from Coconut Grove, invested for the first time this summer, and was aiming for a traditional 60-40 split between stocks and bonds.
But as the financial crisis swelled, Dunn and her financial advisor, Cathy Pareto, decided to move away from stocks. ”We decided it would be better to be much more conservative,” Dunn said. “There’s just so much going on with the economy.”
Dunn now has 50 percent of her investments in short-term domestic and global bonds, 25 percent in a money market account with Charles Schwab and the remaining 25 percent in the stock market.
The return on her bonds is only 2.4 percent, but for now, simple peace of mind is valuable to Dunn. ”I’m comfortable now with where I am,” she said. “I feel like my money is protected.”
Others are choosing to get out of the markets altogether. Joan Kobren, 69, said she and her husband sold their mutual funds last week and put the money into a savings account. Their broker wanted to reinvest the money in the stock market, but Kobren protested.
”We’re just keeping it put until we see what’s happening with the economy,” she said. “It’s our life savings. We’re not investing for the long-term.”
Those seeking safety also might want to consider U.S. Treasury bonds, which mature in 10 to 30 years and have retained their yield rates this year. The yield on the 10-year Treasury bond started the year at 3.91 percent, and on Friday was at 3.85 percent.
Bender also recommended zero coupon bonds, which don’t pay interest, but are redeemed for a higher value than their sale price at the maturity date.
For others, who don’t need fixed income from their investments for the next few years, there may yet be ways to make money.
”You never want to be totally out of the stock market,” said Jeffrey D. Saut, chief investment strategist for Raymond James. “Look for clean balance sheets, decent fundamentals and good dividends.”
Saut said blue chip stocks are safe bets, along with stocks of already strong companies that show growth potential, such as Chesapeake Energy and Alaska Communications.
Michael O’Higgins, a Miami Beach investment manager and author of the 1991 book Beating the Dow, said now that share prices have come down it’s a good time to invest aggressively. ”This is not the time to be looking for safety,” he said. “This is the time to be aggressive.”
Chip Bender said even some of the companies in the middle of the financial crisis could make for good investments. ”For the longer term investors, there’s a tremendous opportunity,” said Bender.
For example, Bender pointed to Bank of America, which has seen its stock slide this year, but also has acquired Merrill Lynch. ”Think of the size of that company coming out of this,” he said.
For the investor with a five- to 10-year horizon looking for income and relative safety, a better idea right now might be an exchange traded fund that invests in high-dividend stocks, said Joseph Nader, managing director of Zenith Capital Partners in Coral Gables.
ETFs are similar to mutual funds in that they invest in a pool of stocks. Some ETFs emphasize stocks that pay dividends, which generally means mature, established companies.
Nader has been recommending that his clients consider an ETF called iShares Dow Jones Select Dividend, which trades under the ticker symbol DVY. The fund invests in the 100 stocks of the Dow Jones U.S. Select Dividend Index. They’re basically the stocks that pay the highest dividends.
Nader figures the dividend yield will be around 5 percent per year, while the value of the shares themselves should increase in the long term.
But for investors who insist on something really safe, O’Higgins suggests certificates of deposit. CDs are guaranteed by the government as long as the investor stays under FDIC limits. And yields can be as high as 4 to 5 percent for longer term CDs.
Pembroke Pines resident Morris Rosenberg, 80, said he was a longtime investor in CDs and wasn’t changing a thing because of the crisis. ”They’re consistent, and there’s good interest,” he said.
”I would go to my nearest bank and buy CDs and tie up your money for however long you feel comfortable” is O’Higgins advice. “They’re FDIC insured. They’re backed by the federal government, and the federal government has a printing press.”
Yet some worry that inflation could be the next economic hurdle.
”Even cash is risky,” said William Neubauer, a financial planner in Coral Gables with Comprehensive Money Management Services. “Because of inflation, you could suffer a significant loss.”
For one distressed client, Neubauer sold half his stock portfolio. But instead of simply liquidating to cash, the client used that money to pay off the entirety of his mortgage. ”At least he owns his house,” said Neubauer.
But for all the uncertainty, many advisors suggest that those who can simply wait out the storm, should. ”The market goes up just as fast as it goes down,” said Evensky. “This is when really good investors come through.”
Muriel Siebert, who in 1967 became the first woman to own a seat on the New York Stock Exchange, said that while the past two weeks have been unprecedented, she isn’t too concerned. ”I haven’t lost faith in the financial system,” she said. “The system is good.”
Miami Herald staff reporter Scott Andron contributed to this report.
