January was, for the most part, a great month for stocks. An improving housing market, more hiring, increased consumer spending – these and other economic indicators seem to have buoyed confidence in the stock market. But with the economy still struggling to recover after a long and painful downturn, there’s still plenty of uncertainty out there. And that’s enough to keep investors wary – especially older ones with a greater interest in safeguarding their money. Ideastream’s Brian Bull reports financial advisors face a challenge in coaxing their clients back into the game.
On one hand, the stock markets have rebounded nicely since sinking to a recession-driven low point in 2009. The Federal Reserve says it’ll keep interest rates low. Corporate earnings are solid. And inflation is at bay.
Then again, there’s been all the Congressional see-sawing over issues like the fiscal cliff and debt ceiling. European markets have been on the skids for years. And there were those two stock collapses last decade.
These and many other events prompted American investors to pull a net 900-billion dollars from U-S equity funds since the start of the millennium.
This instability and the fear of things to come keep investors awake, worried at night….not over monsters under the bed, but market crashes that may lurk around the next corner.
Jeffrey Malbasa is Chief Operating Officer for Spero-Smith Investment Advisers. He says many investors are spooked over the potential pitfalls of the markets.
“I would guess or conjecture to say, that over half of your clients feel that way, that’s human nature," says Malbasa. "You work your entire life to save a nest egg of money, and then it’s at risk. It brings a whole slew of fears that a client has, deep down.”
Among those anxious investors is 60-year-old Joe Bondi. He’s the retired president of DMI Manufacturing and a client of Spero-Smith. He’s played the markets for nearly 40 years, holding diversified stock in steel, coal, petroleum, technology, and the automotive industry. He’s up on the headlines and admits he’s had his nervous spells.
“I would tell Spero, “Let’s not invest in Greece or the European Union even. Unless stability starts to present itself. More consistently and more predictably.’”
Besides Europe, Bondi’s also wary of Congressional quagmire in Washington. He also keeps a wary eye on China and much of the Pacific Rim’s economies.
So how does he cope?
“I guess I just intellectually tell myself to sit still and not get anxious," says Bondi. "You know the swings are so wide. 2008, when the financial system fell off the edge of the table, my 401K went down 25 percent like so many others had. But it’s all back and better.”
For all the indexes, percentages, and dollar figures rampant in market speak, investment is really more psychology than math.
Earl Kissell is a professor of accounting and finance at Hiram College. He says a behavioral approach helps understand the less than rational actions of investors.
“Our fear of losing is much greater than the excitement of winning. So investors keep looking back, and saying “Well, I might have bought stock at 20, and it went up to 40, and it then falls to 35. Well, they no longer look and see “Hey, I made 15 dollars.” What they now think about is, “Hey, I lost 5 dollars!” and they wanna get out of the stock market.”
Kissell says people should be investing, given the low inflation and stronger corporate balances from five years ago. But he concedes that fear is a strong thing to overcome, though it’s not like market upsets are anything new. He points to the dot-com crash from over a decade ago.
“It seems that history dilutes a lot of how we felt at the time," says Kissell. "The dot-com crash, everyone lost a significant amount of money. Now you look at it, and you shrug your shoulders, what do you mean, the dot-com? Investing’s just such an interesting phenomena on behaviors, and perceptions. And perception’s not always reality.”
So what’s the best way to get investors comfortably back into the game?
Financial advisor Jeff Malbasa says trust is a big factor between his firm and clients. They don’t work on commission, so they don’t get compensated for recommending specific stocks. And they stress financial discipline over emotionally-based snap decisions.
As for investors like Joe Bondi, diversification and going for long-term growth vs. rich-quick payoffs is key to feeling secure.
“I’m not looking for a quick turnaround, I’m not looking for the next Microsoft. So I stay diversified, with quality companies.”
Recent signs suggest that investors may be warming up again to the markets.
Just three weeks ago, The Wall Street Journal reported that investors sent $18-billion into stock funds and exchange-traded funds…the largest weekly cash influx since June 2008.