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Balanced portfolios weathered downturn | TribLIVE.com
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Balanced portfolios weathered downturn

People have had it with the stock market.

Collectively, they have pulled about $18 billion out of stock funds this year and poured more than $200 billion into bond funds, which can be safer. Market watchers are shocked, having figured investors would get braver once stocks began to look friendly again. And though some have stuck a toe back into the market, lured by the best September for stocks in 71 years, investors largely remain unconvinced.

Many continue to mourn what they’ve lost and coddle what’s left from one of the worst bear markets in history. The full stock market, the Dow Jones Wilshire 5000 index, remains down about $4.8 trillion from its October 2007 peak, even after having climbed $6.4 trillion from its March 2009 low. But your investments probably have not been as cruel as you think.

While people close to or in retirement might still be hurting if they panicked and ran in the downturn, most people who held on have at least regained what they lost.

Step back to 2007, when you probably felt pretty good about your money. That’s typical just before a nasty downturn. Major collapses generally are fed by people feeling cozy about their money and often putting more into stocks or real estate than is wise.

Just before the most recent downturn, one in four people within 10 years of retiring had put 90 percent of their money in mutual funds invested exclusively in stocks. It was misplaced confidence, and it backfired.

Yet even that oversized bet on the stock market didn’t turn out as badly as imagined amid the excruciating slide. Let’s say you put life savings of $10,000 in the stock market or a Standard & Poor’s 500 index fund in 2007. That $10,000 would have turned into about $4,980 close to the low point in the market in March 2009. But by the end of last quarter, Sept. 30, you would have roughly $8,000.

Of course, having $8,000 to show for your retirement when you started with $10,000 is still not pretty. But let’s look at how you would be sitting if you followed the nagging that goes with good investment principles.

If you had put 70 percent of your money in a stock-market-index mutual fund and 30 percent in bonds, you would have been following the precept of diversification. At the market’s low point, you would have had less than $7,000 of your $10,000 — not as protected as you thought but in much better shape than the all-stock investor. Now, because stocks have climbed, you would have roughly $10,090.

If, however, you put half your money in the stock fund and half in a long-term U.S. Treasury bond fund, you would have had about $7,700 at the scariest time and would have about $11,300 now.

That’s a lot better than the person who got scared and pulled their money after it plunged to $7,700. Parked in a savings account, the $7,700 would have climbed to only about $7,800 now.

What now?

If the stock market continues to rally into the end of the year — as some forecast — more people might give stocks a try again.

In fact, financial advisers have been pushing this. They suggest that people afraid of losing money again consider the balanced approach, combining stocks and bonds in maybe a 50/50 mixture. The past shows that different proportions of stocks and bonds behave differently, and people who don’t go overboard do regain what’s lost.


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