By Jill Nagy
“The fundamentals of the economy are still very good and very strong,” said Saratoga Springs financial advisor Stephen Kyne, a partner in Sterling Manor Financial in Saratoga Springs.
Recent “corrections” in the prices of stocks are not cause for worry, he said. However, “there are more moving parts” than there used to be and it is important to work closely with an advisor.
Bob Schermerhorn, of Saratoga Financial Services in Saratoga Springs, advised putting recent stock market declines into perspective. A 10 percent decline—such as the early February decline in the Standard & Poor 500 stock index—is actually quite normal, as 19 years of the last 38 have had a 10 percent correction. In fact, the average intra-year correction since 1980 is 13.7 percent.”
“It’s different for everybody depending on their circumstances,” he said.
Kyne noted, “It used to be a lot more simple.”
With those caveats, Kyne feels that it still makes sense to invest in stock funds. “In general,” he said, “equity or stock assets will do better than bonds.”
He suggested considering Exchange Traded Funds, which are similar to mutual funds but, in general, more diversified and less expensive because they are not managed as closely. They have a further advantage in that they can be traded throughout the day; mutual funds trades are only made at 4:15 p.m.
Even if a person thinks they missed the boat on Apple or Facebook, there are still technology stocks worth considering, according to Kyne. It depends on the area of technology, he said, “a lot of tech areas are really exploding.”
Many of today’s companies in the technology area have earnings and appropriate pricing, he noted, unlike many of the companies in the previous dot.com boom. He mentioned companies working on the “internet of things,” artificial intelligence, self-driving cars, battery storage, and medical devices. “There is no area that will not be touched by technology.”
If, as is likely, interest rates continue to rise, “people holding bond or mortgage mutual funds will see them lose value,” he said. Still, “there’s a reason to hold everything, depending on your circumstances.”
Municipal bonds, which provide tax-exempt interest, can be advantageous to investors in higher tax brackets, Kyne said, but he had a warning: “Be sure you understand the credit ratings” of the bonds in the fund you are considering.
He noted that many investors were burned because their mutual funds held Puerto Rican bonds, which were prevalent and cheap. Now, Puerto Rico and its municipalities are having trouble paying their debts.
Younger people with student loans to pay off or young families with home mortgage payments can also consider investing if they have good cash flow. If the student loan or mortgage carries a low interest rate, investing excess cash in assets providing income higher than those interest rates can make more sense than accelerating payments on the school or home loan, Kyne feels.
Before investing in anything else, it is a “typical rule of thumb” to keep a cash reserve large enough to cover three to six months of expenses, Kyne said. Some people’s circumstances would require an even larger cash reserve.