Investor Psychology

What Investors Should Do in Today's Market

Before you make a move, know how much risk you can handle.

Every month our staff meets to brainstorm story ideas for the investing section. Our meeting for this issue had us in something of a pickle. As one editor put it, “I don’t know what to say. It’s a tough time to be an investor.”

Consider the litany of risks in today’s markets. Interest rates continue to plummet, increasing chances that long-term bonds would be highly vulnerable to an eventual rise in rates. Stocks, the obvious alternative, have risks of their own, with a jittery bull market susceptible to shocks such as the United Kingdom’s vote to leave the European Union (see What Brexit Means for U.S. Investors and The Three Day Rule for Rattled Investors). Particularly worrisome are high-dividend stocks—notably utilities, whose prices have been pushed up by income-starved investors.

Nervous investors who get out of the markets may feel safer, but they won’t be any richer; cash savings are yielding next to nothing. And then there’s the uncertainty associated with a low-growth economy, a high-tension political campaign and global angst. Bank of America Merrill Lynch concludes: “The only certainty is uncertainty.”

The outcome of our brainstorming session was a suite of stories that offer something for every investor, depending on your preferences and your personal situation.

Senior associate editor Nellie Huang and senior editor Anne Kates Smith make the case for value stocks—stocks that are cheap in relation to a company’s sales, profits or underlying assets. Growth stocks have led the charge over the past decade, but so far this year, value is ahead. Nellie says she favors active managers who “invest opportunistically and buy on little dips.”

For investors who prefer an indexed approach, associate editor Daren Fonda makes the case for exchange-traded funds with rock-bottom expenses. In his one-year update of the Kiplinger ETF 20—our top choices among ETFs—Daren adds a new fund that invests in mortgages and other types of real estate debt. He assembles three portfolios, for aggressive, moderate and conservative investors, plus an all-income package. Whatever your goals, the portfolios “can serve as the bedrock of your investment program for years,” writes Daren—Brexit votes and other market crises notwithstanding.

If the stock market still has you spooked, senior editor Jeff Kosnett makes the case for individual bonds. It’s true that if interest rates were to rise, bond prices would fall. But you can protect yourself, and lock in your yield, by purchasing individual bonds, rather than funds, and holding them to maturity. As Jeff writes, “As long as the issuer makes good on its obligations, you know that you’ll get back the face value of the bond.”

The risk factor. Before you make any move, it’s critical to know how much risk you can handle. In our July story on The Right Retirement Mix, we wrote about the difference between risk tolerance—a measure of your psychological ability to handle losses—and risk capacity—a practical measure of how much you’ll need to cover your retirement expenses and how much you can afford to lose. As one reader observed in a recent letter to the editor, you need to consider both. And wherever you are on that scale, we’ll give you options, no matter how tough a time it is to invest.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 10 Best Closed-End Funds (CEFs) for 2022
CEFs

The 10 Best Closed-End Funds (CEFs) for 2022

These high-yielding CEFs won't just significantly boost your portfolio income. They'll also allow you to buy their underlying stocks and bonds at a di…
January 12, 2022
Sweet Silicon: 5 Superb Semiconductor Stocks for 2022
stocks

Sweet Silicon: 5 Superb Semiconductor Stocks for 2022

If 2021 was a good year for the chip industry, 2022 could be downright great. Here are five semiconductor stocks if you're seeking out growth.
January 11, 2022

Recommended

Semiconductor Stocks: A Smart Bet for the Long Haul
Becoming an Investor

Semiconductor Stocks: A Smart Bet for the Long Haul

Stocks in this growing industry will stay in demand long after supply-chain snarls are unraveled.
January 26, 2022
The Right Dividend Stock Fund for You
Becoming an Investor

The Right Dividend Stock Fund for You

Dividend stock strategies come in many different flavors. Here's what to look for.
January 26, 2022
A Dynamic Duo for Yield in 2022
Investing for Income

A Dynamic Duo for Yield in 2022

Investors should maintain core positions in both REITs and utilities, with regular contributions to both.
January 26, 2022
66 Best Dividend Stocks You Can Count On in 2022
dividend stocks

66 Best Dividend Stocks You Can Count On in 2022

Yield isn't everything when it comes to finding the best dividend stocks. Income investors know there's no substitute for regular dividend increases o…
January 25, 2022