Rethinking Your Investments

  Investors have made trillions of dollars in the stock market over the past decade but now may be the time to start locking up your pennies.

  Although the Dow Jones Industrial Average raced through the 11,000 level earlier this year, many experts look for the going to be tougher in the years ahead.

  In the past, only the truly wealthy had to worry about where the stock market was headed; however, today more than half of American households have one or more persons owning shares of America’s industry -many through 401(k) or similar retirement-savings plans offered by their employers.

  Although inflation and interest rates are lower today than in years, the stock market has been bouncing around like crazy.

Your goal of pocketing as much as possible of past and, hopefully, future stock-market gains, while smoothing out the roller-coaster effect, could benefit from these strategies:

  Have some of your money in “index” mutual funds, which track the performance of market averages. While many growth funds, or, more recently, Internet funds, have posted annual gains of 25 to 35 percent a year, an index fund will crank out a constant 8 to 10
percent return even when the high-fliers take a tumble.

  Have some of your money in dividend-producing stocks or in mutual funds that invest for income as well as growth. If you own stocks with decent dividend yields, you should make money-even in a lackluster market.

  Don’t panic about the impact of market “corrections” upon your investments and particularly your retirement funds.

  There are no guarantees with any investment, but you should remember that pension investments are for the long term, to ensure an income to the end of your life, writes Robert Lea of the London (England) Evening Standard. He suggests that if you are within five years of retirement, you might consider safeguarding previous stock-market gains by shifting from stocks into fixed-income investments like certificates of deposit or Treasury bills.

  But safety does not equal profitability, notes financial columnist Lauren Rudd of Savannah, Georgia. With certificates of deposit, for example, the return of principal and interest is guaranteed.

“Unfortunately, most investors forget to allow for inflation,” he writes. They also do not take into account taxes on the interest earned, he adds.

  People age 55 or older wanting to save on taxes and reduce the volatility of their portfolios should put 10 to 15 percent in municipal-bond funds. These funds are tax-free at the federal level and also may be at the state level, suggests Deborah Allen, president of Rutledge Research, a financial and economics analysis firm in Williamsburg, Virginia.

  When picking a municipal-bond fund, she urges investors to “look for one that focuses on bonds with maturities of seven to 10 years. These are the ones that yield the most with the least volatility.”

  Rudd notes that “investors drive themselves into exhaustion trying to pick the best time to invest.” Any time is a good time, he believes, as all previous market sell-offs over the last 40 years have averaged eight months. And all indices have more than recouped their losses.

  The key to making, and keeping, money in the stock market is to invest for the long term, experts agree. 

Beware of these investment scams

  The Securities and Exchange Commission and the California Department of Corporations list these major investment frauds:

· Advice on an unauthorized web page or an unsolicited e-mail message touting a “hot” stock that may fail to disclose stock ownership by those posting the information.

· Messages to religious, professional, or ethnic groups may be part of an “affinity-group” fraud.

· Investment seminars, which often feature unlicensed practitioners, a lack of honesty about conflicts of interest, and hidden fees or commissions.

· Commodity frauds that tempt people to buy foreign currency or precious metals at what appear to be large discounts. The con artist often simply steals the funds invested.

· Entertainment-related investments, which can be risky, but are often offered as “sure things.” Such promotions paint an unrealistic view of the profitability of movie making and other entertainment-related products.