Investing Strategies for an Evolving Market –– Barlow Capital Advisors

Investing Strategies for an Evolving Market

Courtesy Dan and R. Brennan Barlow, Denton LIVING WELL Magazine

From the collapse of the technology bubble in the early 2000s to the subprime lending meltdown that started in 2008, the markets have been anything but predictable. Case in point: The political fight over U.S. debt policies in 2011 roiled the markets and led to an unprecedented downgrade of the nation’s credit.

“We’ve seen two big pullbacks in the stock market within the last 10 years, and investors are justifiably fearful that the same thing could happen again,” says Scott Wren, senior equity strategist at Wells Fargo Advisors.

Fortunately, investors can use two key strategies to manage their savings in the midst of an unpredictable market. The important thing, Wren says, is to stick to the fundamentals.

Think Long Term

Investors face a constant barrage of financial news and advice. From websites and newspapers to 24-hour cable news programs, recent market developments are sliced, diced and analyzed in granular detail.

But that doesn’t mean you need to react to every breaking news item scrolling across the bottom of your TV screen. In fact, making investment decisions based on day-to-day changes in the markets may actually move you further away from your financial goals.

It’s extremely difficult—if not impossible—to accurately predict the direction in which financial markets are heading. Studies have shown that investors who try to time their jumps in and out of the stock market are often rewarded with subpar performance.

For example, a recent study by research firm DALBAR, Inc. noted that the average equity fund investor earned an average annual return of 3.8% during the 20 years through 2010.* During the same period, the S&P 500 Index gained an average return of 9.1% a year. A primary reason for that underperformance, according to DALBAR, was investors’ habit of moving in and out of the market at the wrong times.

“It’s very difficult for individual investors to time the market,” Wren points out. “Instead, we suggest that they should think about accumulating assets over a long period of time.”

This buy-and-hold philosophy may be difficult to follow—particularly during volatile periods in the market. But Wren notes that the financial markets often make considerable gains in the months and years following a downturn, and investors who stay on the sidelines and out of the stock market, for example, won’t fully benefit from those gains.

“Investing for the long haul got a bad rap after the technology bubble burst and after the 2008 downturn,” he says. “But it’s a strategy worth believing in.”

Review Your Asset Allocation

Adopting a long-term investment perspective doesn’t mean taking a hands-off approach. In fact, it’s important to make regular adjustments to your portfolio. Doing so is not only likely to help keep your investment strategy on track but can also help you take advantage of bargains in the financial markets.

Periodically rebalancing your investments requires you to shift your portfolio’s asset allocation—your mix of stocks, bonds and cash investments—back in line with your target allocation. For example, if stocks have performed poorly and bonds have performed well in recent months, you may find that stocks make up too small a portion of your portfolio while your bond stake has grown too large. Left unchecked, that unbalanced portfolio may be too conservative to keep you on track to reach long-term financial goals such as retirement.

To help manage market volatility and assess opportunities that might arise, Wren recommends meeting with your financial advisor once a year to review your portfolio and rebalance your asset allocation if market moves have thrown it off-kilter. In highly volatile markets, you may want to schedule a second yearly review.

Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.

* DALBAR, Inc., “2011 Quantitative Analysis of Investor Behavior: Helping Investors Change Behavior to Capture Alpha,” March 2011.

The S & P 500 is an unmanaged weighted index of 500 stocks providing a broad indicator of price movement. Past performance is not indicative of future results and individual investors cannot directly purchase an index.

This article was written by Wells Fargo Advisors and provided courtesy of Dan and R. Brennan Barlow, Barlow Capital Advisors in Flower Mound at 972-539-1400.

Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Barlow Capital Advisors is a separate entity from WFAFN.

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