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The Surprising Advice From Advisers

As the Dow plummeted this week, then steadied today, financial advisers found themselves in a familiar spot: fielding calls from antsy clients. But while the standard advice is to sit tight during any market panic, many were recommending investment moves to protect portfolios — and even boost returns.

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Surveys show that a growing number of advisers and planners are dealing with market calamities differently than in the past, telling clients they can’t simply “buy and hold” stocks for years anymore and must make regular tweaks to their portfolios when the markets swing wildly. One strategy following this week’s drop: Buy high-quality stocks on the dip, says Charles Sizemore, a financial adviser in Dallas, Texas. In particular, Sizemore recommends scooping up blue chips with a long history of raising dividends. That way, if market volatility continues, “you’re being paid handsomely to wait it out,” he says.

Dividend-payers currently trading at low prices relative to earnings, says Sizemore, include Microsoft (MSFT), Intel (INTC) , Johnson & Johnson (JNJ) and Procter & Gamble (PG). These stocks can be particularly beneficial in the coming months and years if stock price gains are as meager as some economists and market watchers predict.

For those investors who believe there’s plenty more trouble ahead for stocks, Wayne Copelin, a financial planner in Sugar Land, Texas, recommends selling shares now and keeping the proceeds in cash. For some clients, he’s advising shifting as much as a quarter of their stock portfolios to cash for now — even despite the near-record low yields in money funds. Investors can then use this cash hoard to scoop up bargains when the volatility has settled.

Other pros are advising their clients to avoid buying – or holding — bonds as a safe haven. Yields on most bonds are near historic lows, and the Federal Reserve’s “Operation Twist” to drive down interest rates is expected to push them even lower. Indeed, lower yields on bonds that are priced off Treasurys, such as corporate bonds, will mean investors are taking a greater risk for a smaller payoff, says experts. One income-producing alternative: real estate investment trusts, says Kent Grealish, a financial adviser with Quacera in San Bruno, Calif. In spite of the worst real estate market in decades, REITs have managed to beat most other investments this year. They’re also resilient: Over the past three decades, REITs total annual returns, including dividends, average 10.25%, according to NAREIT.


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    • What good luck!

    • This book’s advice is sleimading, and this is unfortunate given that it’s one of the only publications available on preferred stocks. 1. The author fails to point out the major underlying risks of preferred securities. Preferreds are only one step above regular stocks in credit safety, should the issuing firm declare bankruptcy. Firms that issue preferreds can and do fail, often wiping out the preferred investors. And yet the author suggests that the risk of preferreds is CD-like (FDIC insured up to $100,000) throughout the book. Not true! 2. The author conveniently ignores the reverse cannonball price curve in his visual graphics, thereby implying that most preferreds rise in price after issuance and then recede back down to par at the redemption or call date. When rates rise and/or the issuing firm suffers in performance (think Countrywide!) prices will fall and may stay low, NOT recovering to par at the first call date. An investor may not be able to upgrade without a loss. Again, the author is not being truthful about what actually can of often does occur. 3. The author fails to point out that investors can often purchase preferreds at well below par, taking advantage of market price drops when the issuer’s health has not deteriorated. By acquiring only at/near IPO prices, investors who follow his advice may severely limit their upside. 4. The book reads like one long, and cheesy infomercial peddling the author’s subscriber services. If you want to avoid the pain of losing money in preferred stocks: don’t buy this sleimading book or his services!

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    • No responsible advisor would recommend buying “stocks” that have a particular past track record. A responsible advisor might recommend buying shares of companies which are responsibly and honestly managed and have solid prospects going forward. If this unsubtle distintion is lost on your advisor, you should find a new advisor.

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