PLAYING IT SAFE
Here's an article from the Daily Bulletin published in July 2009 advising clients to avoid taking excessive risk and to beware the squanderbug. :)
Reprint courtesy of: www.dailybulletin.com
Thursday, July 2. 2009
Financial advisor takes stock of market risk
By Matt Wrye, Staff Writer
Pick a stock- any stock. Is it worth risking your own money?
Kevin Salveson doesn’t think so—but he’s not advocating stuffing your money under a mattress either.
The financial planning specialist with Morgan Stanley Smith Barney gave some free advice at a seminar this week in the wealth management firm’s Claremont office. He’s offering a contrarian viewpoint to those who try to hand-pick a single stock: you could be taking too much risk.
“Single stocks are ridiculously dangerous, and the market misprices them
all the time,” Salveson said. “There are other ways to keep people’s investments safe.” Here’s one strategy: Don’t pin all your hopes on a single stock buy-and-hold strategy, where you take your chances on a risky stock and hope to capitalize on its growth over time.
Salveson says you’ll do better in the long run with a more “diversified and properly allocated” approach. “People think of diversity as a few mutual funds in an IRA or 401k, but true diversity means an allocation which is appropriate for the risk you want to take, using instruments many investors overlook.”
Salveson says finding and allocating such instruments takes an expert.
If you compare the hand-picked stock investor’s portfolio performance to someone who works with an expert to invest in a portfolio beyond stocks including annuities, CDs, foreign bonds, municipal bonds, mutual funds and other truly diverse instruments, the latter will most likely outperform the former with less risk, Salveson says.
He says just missing the worst days of the market produces better results than being in on the “good days” where a stock price skyrockets...Investors should focus on managing risk with the help of an expert.
La Verne residents Joyce and Jim Henning took Salveson’s advice to heart. They’re not against stock investing, but at their age the retirees can’t afford risky plays..."At our age, it just wasn’t worth losing all that money that quick.”