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Guarding Your Wealth for Senior Citizens
Buy, Sell or Hold Decisions Should Not Be Based on
Overall Market Performance
When everyone rushes to exits, those brave enough
to stay can pick up real bargains
By Jeffrey D. Voudrie, CFP
Nov.
28, 2007 - The markets continue to be tumultuous and we’re seeing the
markets re-test the lows that were reached in August. . Since October
29, the S&P 500 is down 8.5%, the Russell 2000 is down 10.7% and the
emerging markets are down over 15%. Even energy stocks are getting hit
hard. Should you be selling stocks, gritting your teeth and hanging on
or be stepping up to the plate and buying?
To answer that question, you can’t just look at the
headlines or your account value and decide whether or not action should
be taken. The market headlines are based on averages. Movements of the
bigger companies in the averages can easily skew the performance. The
financials have been getting hammered lately and financials make up a
large part of the S&P 500.
Of course, that doesn’t mean that other stocks are
immune. Investors (and traders) can panic when they see the decline of
the averages and they sell everything. And sell they have.
The decision to buy, sell or hold shouldn’t be
based on the overall market. It shouldn’t be based on fear or greed. I
believe we need to look at individual holdings to determine which action
we should take.
I don’t know of anyone who has stopped using their
telephone or internet based on the recent decline in the market. You’ll
continue to use it and you’ll continue to pay your phone bill month
after month. That’s money the telephone companies can use to grow their
businesses and to pay dividends. Rural telephone companies also receive
subsidies from the U.S. Government. This represents a very stable cash
flow.
To say that differently, a rural telephone
company’s ability to pay their dividend usually isn’t affected by the
economic cycle. That’s one reason I regularly use them in my clients’
portfolios.
That hasn’t prevented a sell-off of these rural
telephone carriers of late. Those buying these stable companies now are
handsomely rewarded by higher dividend yield—many now in the 6-10%
range.
The underlying businesses of these companies
haven’t changed. Their ability to pay and increase their dividends
hasn’t changed. So it’s hard to justify selling them now. It’s quite
easy to build the case for buying them.
Another group of securities that haven’t been
fairing well lately is the closed-end bond funds. Typically, bond funds
do well when the stock market is falling and interest rates are going
down. Credit-related panic selling, though, has driven the price some
quality shares down 8 to 10%. Will the credit crunch adversely affect
these holdings?
I don’t think it will.
There are closed-end funds with attractive
portfolios of bonds that can be purchased for less than the underlying
costs of the bonds themselves. For instance, a sovereign government fund
isn’t going to be adversely affected by the sub-prime mortgage
situation, yet these shares have been sold-off just like everything
else. But they continue to pay their dividends and have yields over 6%.
With the 10-year U.S. Treasury now yielding less
that 4% (!), these are very attractive yields. As market fears subside,
investors looking for a higher level of income will once again recognize
these securities and move money back into them. That should bring a
recovery in their share prices. In the meantime, we continue to earn
over double the 10-year Treasury note.
In short, if we just look at the headline numbers
of the major stock market averages, it’s easy to come to the conclusion
that we should get fearful, sell off stocks and move a large part of the
portfolio to cash. When you dig below the headlines and do some research
you see that there are high-quality, defensive companies that make sense
to continue to hold and to buy more.
I’ve just highlighted a few examples. The market
downturn, in my opinion, has also created some attractive opportunities
in growth-oriented companies. In particular, I like companies that are
part of longer-term global trends. For instance, global growth and the
need for alternative energy have spurred tremendous demand in several
industries. Those stocks are now very attractive.
The key is to not run with the herd. When everyone
is rushing for the exits, those brave enough to stay behind can pick up
some real bargains. I believe that now is one of those times.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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