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5 People Who Should Avoid the Stock Market


For bargain-hunters and thrill-seekers, this may seem like a good time to buy stocks. But experts say there are many would-be investors who should refrain from putting any more of their money in equities – at least for now. “I discovered over time that most of my clients have a high risk tolerance,” says Kevin Sanderford, principal of Colorado West Investments in Montrose, Co., “but not one of them has a high loss tolerance.” Here are some people who may not be able to withstand losing money:

1. The Big Spender

If you need cash in the next 6-12 months for a car, college fees, a wedding or a new home, this is not the time to take excessive risks in equities, despite the temptations. “You just don’t want to have your short-term money invested in the market at the moment,” says Gary Winnick, financial adviser with Ameriprise Financial Services in Saratoga Springs, NY. “Five to 7 years is a proper time frame for investing.” Given the uncertain economic climate, John E. Sestina, a financial planner in Columbus, Oh., says, “You should also use any extra money to cut your credit card debt as fast as you can.”

2. The Nervous Investor

Kit Yarrow, professor of psychology and marketing at Golden Gate University in San Francisco, says nervous or overly emotional people should think twice about playing the market. “Anyone who is a hot head should avoid putting too much of their money into stocks,” she says. “It takes a dispassionate person not to overreact to a market correction.” Yarrow says investors need discipline and patience. Ray Mignone, a financial planner in Little Neck, NY., says, “If you’re conservative, stay conservative. There are certain people who can’t tolerate volatility and want to sell out at the bottom.”

3. The Baby Boomer

Chad Slagle, a registered investment adviser, and founder of Slagle Financial in Edwardsville, Il., says those 10,000 baby boomers who retire every day should have 60%-70% of their money in a safe place – and that doesn’t include equities. “People who are getting ready to retire cannot afford to lose 20% of their wealth in one week,” he says. “You have to draw a hard line in the sand when you are at least five years away from retirement and choose preservation over accumulation. If you haven’t locked away most of your investments by your 60s you have the wrong financial adviser.”

4. The Business Owner

“Business owners will have a vast majority of their net worth tied up in the company, which means they’re already in equities,” says Sanderford. He says a typical formula of “110 minus your age equals your equity coverage” doesn’t work for many people whose businesses will be directly impacted by an economic downturn. “If the economy tanks your business may suffer along with the stock market so you need to be ultra-conservative,” he says. Sestina says it’s still vital to have a 401(k) or Simple IRA, but says, “Many small business owners tend to get better returns by re-investing in their own business.”

5. The Gambler

For novice investors looking to make a quick buck, be careful. “If you have a gambling mentality, you’re better off going to a casino with $100,” says Maury Fertig, chief investment officer at Relative Value Partners in Northbrook, Il. “The stock market is great place for a long-term investment,” he says, “but this doesn’t always make sense for the mom-and-pop speculator.” Mignone advises his most foolhardy or reckless clients to set up a small retail account, so he can manage the bulk of their money. “That way,” he says, “they can do less damage.”


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    • It isn’t that I disagree with your iinhktng as much as I understand that, even though, I might not choose to invest in the companies I find reprehensible from a moral or philosophical point of veiw, that, in and of itself, doesn’t make them go away or, even, weaken them. By buying these personally opposed stocks and using some or all of the profit gained to stop their progress seems to be, to me a fitting zero sum activity until the day it isn’t.Either way, neither of us profits but my way only I might have actual skin in the game , if you will.You want to Occupy Wall Street ? Buy the stock of the company you hate and leverage your stake and profit to change or shut them down .

    • The financial advisor that suggested that baby boomers lock away 60-70% of their retirement funds is without a doubt suggesting annunities to his clients as an alternative to a balanced investment approach with stocks and bonds. Just another insurance salesman disguised as a financial advisor….it seems like our industry is overrun with these guys now.

    • This is sooooo typical of the Smart Money columns of late. Glib, shallow, pablum, and horrible “advice” to boot.

    • BoomerGuy, see it clearly. More power to him.

    • Watch the price of gold. Don’t buy it. Just watch it and you will know when to go to cash or defensive equities. Any time a commodity that is basically worth $50 an oz. goes to $1800 an oz. the big money is scared out of its gourd.

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  • Pay Dirt examines the millions of consumer decisions Americans make every day: What to buy, how much to pay, whether to rave or complain. Lead written by Quentin Fottrell, the blog examines these interactions, providing readers with news, insight and tips on shopping, spending, customer service, and companies that do right – and wrong – by their customers. Send items, questions and comments to quentin.fottrell@dowjones.com or tweet @SMPayDirt.