If a roller-coaster market gives you a queasy stomach, or if you are going to need your nest egg soon, ease off on stocks. Richard Russell, publisher of the Dow Theory Letters in La Jolla, Calif., suggests selling everything now. ““Get to the sidelines in cash,’’ says Russell, who thinks that stocks are greatly overvalued and that gold coins – a traditional hedge against inflation – will be a safe bet. Most investment houses, while not as grim, also sense a ferocious ursine presence on the prowl. Many have adjusted their investment strategies to include a higher percentage of cash and bonds than previously deemed shrewd. Dean Witter, for example, urged its investors to recalibrate their ratio of stocks to bonds from 60:40 to 50:50. At Salomon Brothers, clients were advised to hold 45 percent of their portfolios in stocks, 30 percent in bonds and 25 percent in cash. Yields on bank certificates of deposit are the richest in years, although if rates go still higher you’ll wish you’d waited.
If you don’t need your money tomorrow and you don’t depend on investment income today, you have options besides bunkering down in a CD or a money-market account. Most investors are hyped on bonds, and with good reason. Five-year Treasury notes are yielding 7.64 percent. Municipal-bond yields are attractive, too, although Chris Carroll, head of government trading at Nomura Securities, warns that there are risks attached. ““If the Republican-driven House wants to push federally funded projects off onto the states,’’ he says, ““munis will be hurt.’’ If you’re not tax-shy, short-term AA-rated corporate bonds are yielding 7.6 percent. Keeping some money in stocks is not a bad idea. David Shulman, chief investment strategist at Salomon Brothers, counsels individuals to stay with blue chips and steer clear of the flashy technology companies, which, he believes, are likely to be unstable.
Those with the nerve for financial bungee-jumping and enough time to wait the market out – that’s five years at least – should take advantage of the temporary dive in stock prices. Consider it a sale. Bill Dodge, chief investment strategist at Dean Witter, is encouraging bolder clients to buy auto stocks, which dropped 5.1 percent in the last month and have taken a pounding all year long. With the cars jumping off the lots, he thinks the industry is far healthier than it gets credit for. Marty Zweig, president of the Zweig group of mutual funds, points out that ““utili- ties have been mutilated’’ and predicts ““they will do better than other stocks’’ because they have less of a beating to take. Foreign stock markets, most of which tumbled along with Wall Street last week, have become more attractive as well.
All but the most gun-shy investors need to look beyond this week’s headlines. ““The 90-point drop has become a fairly routine event,’’ says Roger Servison, managing director of Fidelity Investments in Boston. ““Most investors would be well advised to screen out or ignore swings in the market,’’ agrees Hugh Johnson, chief investment officer at First Albany Corp. After all, the market always comes back eventually. Even if you had stayed fully invested in stocks after the crash of 1929, you’d have made your money back; the Dow recouped its losses – by 1954.
