ARE PEOPLE FEELING MORE CONFIDENT ABOUT INVESTING AGAIN?

By Jack Etzel

How would you like to make your living based on how confident every one of your customers happens to feel about investing their hard-earned money in these times? That’s the position in which financial advisors and planners find themselves every day, and why we sought out two of them to get advice and a pulse on today’s investors.

Regular readers of this magazine are likely familiar with AJ Jugan and Brian Stumpf, who together contribute a monthly column titled Financial Matters. Jugan and Stumpf are Penn State graduates with majors in finance, economics and business. Today, both are Certified Financial Planners with Ameriprise Financial Services, Inc.

North Hills Monthly Magazine (NHMM): Gentlemen, are investors thinking differently than before the recession?

Brian Stumpf: Their attitudes are different. I think in light of how severe this last bear market was, a lot of investors are not willing to take on as much risk as they were before. On the other hand, the true investor—someone who understands about buying low and selling high—probably felt more confident putting money in the market in March 2009 than they do right now.

NHMM: AJ, what’s your take on what investors have been through and how they feel today?

AJ Jugan: Most investors under-stand that it’s normal for the market to go through swings like it did, although the most recent one was certainly more severe than others in the past have been. Some people always seem to find reasons to tell themselves that this time it will be different and there won’t be a recovery. Then, the market bottoms, we begin to see a little recovery and things eventually are back to normal again. At the beginning of a recovery, folks may be tentative to invest, but as the market continues to improve, they feel more comfortable. Today, they look back and have to admit that they experienced losses, but only now will they acknowledge that it was just a natural cycle of the market.

NHMM: Let’s talk, then, about risks. Those who often bet on high risks, the get-rich-quick mentality, if you will, likely lost the most. Do gamblers who think they’re investors ever change?

Stumpf: What you’re asking depends on many factors, the most important one being your age; in other words, your time frame. If you have an investment time frame of more than 15 years, you can afford to be a higher risk investor. But what I find interesting in your question is that most investors, sooner or later, let their emotions get involved. When they should be more aggressive, they are more conservative and when they should be careful and conservative, they tend to be more aggressive.

NHMM: But that’s what you guys are for, right?

Jugan: Exactly—no one should invest with their emotions. But speaking of risk, I would say that risk is not something to be avoided. Risk is something that should be carefully managed. If you allocate a portfolio correctly, this allows an investor to take on a little bit more risk, but experience less volatility then chasing returns on some penny stock they came across on a website.

NHMM: What about cash? When the market was heading down rapidly, you could hear pundits proclaiming that it was time to get out of the market and put everything in cash. Did that make any sense?

Stumpf: That’s part and parcel of trying to time the market. There are still people today who say that they should have gotten out of the market in October of 2007. Well, the fact is, no one has a crystal ball. As long as you were managing an investor’s portfolio properly, if you didn’t get them out of equities at that time, but it was still an appropriate allocation based on risk tolerances, you did the right thing. But to say that you should have gone into cash, and then in March you should have put it back into the market and so on, it’s simply impossible to do that. Some people say that they can time the market, but that just boils down to luck. Has it ever worked? Of course, but it’s unrealistic to think you can do that consistently over a long period of time.

NHMM: AJ, are you in agreement on that, timing the market?

Jugan: The short answer? Yes.

NHMM: Even the best financial planners can’t claim to be fortunetellers—pun intended—but what is your own personal outlook for the future?

Jugan: In the short term, let’s say the next three years, it’s impossible for anyone to say. If you have money that you will need in the next three years, it shouldn’t be invested in the stock market; it should be in some type of cash product, like a CD or money market. Longer than that, what happens in the next quarter becomes irrelevant, as long as you have an appropriate asset mix and it’s within your risk tolerance. If you have a 401(k) plan or an IRA, keep making your contributions. This is called ‘dollar cost averaging,’ and is a very important concept in investing. For the long term, I believe we’ll come out of this recession stronger than we went into it. This has been the history of the natural economic cycle. I’m very confident in the long term future for investors.