Goshen News, Goshen, IN

Business

February 12, 2014

Market downturn creates stock bargains

Investors can boost 401(k) plans at less cost

NEW YORK — This year's stock market decline has left investors uneasy.

But money managers say take a breath — the downturn could offer opportunities to strengthen your retirement savings for the long run.

Signs of slower growth in China and other emerging-market economies, as well as weak reports on U.S. manufacturing and hiring, have shaken investors' confidence. And while stocks have rallied in recent days, most big indexes in the U.S. are still negative for the year.

There's an upside, though. People making regular, fixed purchases of stocks or bonds through a 401(k) retirement plan can now buy more stocks at cheaper prices. Dropping prices also allow them to shift, or rebalance, their portfolios toward stocks and away from bonds. Falling prices can be viewed as opportunities for those who believe the market will climb over the long haul.

More broadly, a sell-off can be healthy because it resets investors' expectations after big gains, and it stops the market from getting out of line with economic reality.

Rebalancing portfolios

After the stock market collapse of 2008 and the Great Recession, many investors switched their investments from stocks to bonds, or cash, because the assets were considered less risky.

Those moves paid off for a few years. But with the overall economy looking healthier, many analysts are advising investors to put more money into stocks and cut their exposure to bonds. That's because long-term interest rates are expected to rise as the economy improves and the Federal Reserve reduces a huge bond-buying program.

Rising interest rates in an environment of accelerating growth is good for the stock market, but bad for bonds, says Gerry Paul, chief investment officer for North American Value Equities at Alliance Bernstein. Investors should hold stocks to offset losses they will suffer if interest rates climb.

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