People who believe we’re headed for a recession should remember that investing is counterintuitive. In a full-fledged recession, savvy investors are buying into stocks. “You must be present to win,” says Curt Rohrman, a fund manager for USAA. Stock turnarounds can be swift and unpredictable. Miss the best 2 percent of days in the market and you can cut your average returns from 19.87 percent to 1.9 percent, says University of Missouri professor John Stowe. Being in the market at the wrong time is better than being out at the right time. But buyers should scale back expectations to the 9- or 10-percent level from the 18 percent a year they saw in the ’90s. “We will never see another decade like the ’90s in our lifetimes,” says Peter Tanous, of Lynx Investment Advisors. Instead, here’s how to make the 2000s work for you.
He’s also telling clients to sell losers they may be sitting on. If the market does rise in the second half of this year, investors could lose the losses they’re looking at. That would be good for the big picture, but why not take the tax breaks while they are here? Sell stocks in taxable accounts that you are holding at a loss, he says. You can buy something similar right away or wait 31 days and rebuy the same security.
Investors can get a lot of protection by keeping a portfolio well diversified with shares of small and large companies, growth and value firms, and domestic and foreign stocks. Mix in equal measures, rebalance twice a year, add new money gradually and don’t sweat the summer seesaw.
