February 1, 2013

Despite stocks' success, many small investors stay away

Individuals who took their money out of stocks and mutual funds after the collapse continue to be cautious, leaving institutional investors to fuel the surge.

By Jessica Hall jhall@pressherald.com
Staff Writer

(Continued from page 1)

Frederick Reimer
click image to enlarge

Trader Frederick Reimer works the floor of the New York Stock Exchange on Friday where a board, above, shows the closing number for the Dow Jones industrial average, which topped 14,000 for the first time since 2007. Large investors are behind the index's recent rise.

The Associated Press

click image to enlarge

The Dow Jones industrial average topped 14,000 for the first time since 2007 on Friday.

The Associated Press

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Brian Clement, a senior vice president with RBC Wealth Management in Portland, said individual investors often make emotional decisions, rather than sticking to long-term financial plans.

"Institutions wait," he said. "Institutions are much less emotional investors than individuals."

Now, he said, "Investors who left the market in 2008 are starting to come back."

He said, "Individual investors bailed" when stock prices were down. "Some clients were buying in at the bottom, but that was rare."

Advisers say individual investors can't let emotions get in the way, especially with a volatile market or news about hot stocks "We try to tell people not to let short-term current events affect long-term goals," said Dan Dougherty, a financial adviser with Edward Jones in Portland.

"You have to have a rational approach to investing and look at what your experience has been. Ask yourself, 'Did I lose sleep at night when the market was bad and was I euphoric when it was doing great?' Emotion -- that's not a good way to determine your investment moves."

Investors have been encouraged by several recent developments, such as Congress averting the fiscal cliff, an easing of Europe's financial crisis and a recovery in the U.S. housing market, Clement said.

"Three dark clouds have gotten less dark. Things have lightened a bit. But we're a long way from irrational exuberance. We've just gotten back to the October 2007 levels," Clement said. "When markets fall, people panic and get out and say, 'Never again.' They sit on the sidelines in cash. As the pain and suffering becomes a more distant memory, they begin to look at options again."

While some investors are still skittish about investing in stocks, advisers say some stock exposure is necessary for people to see any growth in their portfolio, given the historically low interest rates on savings and money market accounts.

Financial planners said it's difficult to give general investing advice because so much depends on a person's savings, debt, age, years until retirement and ability to withstand risk.

Still, some advice rings true for everyone: diversify your holdings, buy quality and talk to a financial adviser, they said.

"People need to be rational about what they are doing. Don't allow your emotions to drive your actions," said Susan Veligor, a principal with Cornerstone Financial Planning in Portland. "Have a plan in place and stick with that."

Jessica Hall can be contacted at 791-6316 or at:

jhall@pressherald.com

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