Steamboat Springs Don't panic.
That's the message coming from financial advisers in Steamboat Springs amid the U.S. economic slowdown and housing crisis. Instead, they suggest investors maintain diversified portfolios and make sure they have a long-term financial plan.
That diversification is called asset allocation. As the U.S. Securities and Exchange Commission describes it, "asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds and cash."
Joe Birkinbine, president of ATP Financial Services, is a strong proponent of the practice. As Wall Street wobbles, people who spread their money around will be much better off, he said.
"In the choppy times, it's so important to be asset allocated," Birkinbine said. No universal formula exists in the practice, he said. Each person's needs are different, and investors need to assess factors such as how much risk they care to tolerate.
Dan Foley, a certified financial planner at Sleeping Giant Financial Services, also encouraged investors to keep a diversified portfolio. The market could be down for a while, he said.
"I think with the investments, they need to be cognizant that we're down about 22 percent from the high last October. : I think we're in about the fifth or sixth inning of it," Foley said. He encouraged people to keep an eye on their mortgage rates and make sure they have emergency cash on hand.
Financial planner John Pougiales of Raymond James Financial Services also promoted asset allocation. The practice makes it less terrifying when, for example, the Dow Jones industrial average hemorrhages 250 points and hits its lowest level in more than a year, as it did Thursday morning.
And if you don't need money immediately, don't be rash, Foley said.
"It's definitely not a time for people to freak out and sell unless it's a crappy investment," he said.
Not only that, this could be a great time to buy, Birkinbine said.
"It's almost like a blue-light special at Kmart," Birkinbine said. "Prices are down; you don't want to wait."
Stick to the plan
Timing also is tricky. Investors should put in a set amount of money at regular intervals, regardless of market trends, Birkinbine said. That practice is called dollar-cost averaging. It simplifies the process and leads to solid returns, he said.
For those still nervous about Wall Street, however, investing doesn't have to mean shoveling pitchfork loads of C-notes into Fortune 500 stocks. Alternative investment options are available. Birkinbine's clients can invest in companies that own office buildings with longtime tenants, for example.
"When we hear about the real estate crisis, it's residential," he said. "Commercial real estate : it's stable."
Indexed annuities are another alternative. They are tied to a market such as the Nasdaq or the S&P 500. As Birkinbine described it, when the market goes up, the investor makes money. But safety nets are in place so that when the market drops, the investor loses nothing from his or her principal investment.
The important thing to remember is to diversify and look at the options, the experts said.
"People don't know what to do, for sure," Birkinbine said. "In the 1990s, with the largest bull market ever, you could almost throw darts and be OK. Now, people are going back to saying, 'I need a strategy. Who can help me form a strategy?' That's where investment professionals come in."
Pougiales said it was crucial to maintain perspective.
"I think the biggest problem people make in times like this is paying too much attention to the media : and listening to the cocktail frenzy they whip up," he said. "I think the one mistake is to pull back everything and not have a game plan that's committed for the long run."