What Investors Should Do in Today's Market

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

businessman with financial symbols coming from hand
(Image credit: violetkaipa)

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.”

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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.

Janet Bodnar

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.