Every Wednesday, Legg Mason Wood Walker financial adviser
Jonathan Murray answers e-mail on your investments. To be included
next time, send
your questions.
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 13, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello Jonathan,
It’s the question on every investor’s mind: When’s this pain going to end? Our first questioner assumes it will; she’d just like to know where to look for relief:
When the market rebounds, what sectors or specific stocks will lead the way?
Ann
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 13, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Ann,
That’s a great question. Usually, when markets rebound, the sectors that had led the market higher in the recent past are NOT the ones to take
the lead in the future. In fact, it is more often the case that the sectors that have fared more poorly in the recent past are the ones to take on a new
leadership role.
History has demonstrated this “worst-to-first and first-to-worst” pattern. For instance, in 1982 international stocks were the worst-performing
sector, yet they went on to become the best-performing sector in 1985, 1986 and 1987.
In 1987, small-cap stocks were hardest hit, then went on to become the best performers in 1988, when they returned 29.47 percent. After outperforming in the mid-80s, international stocks became the worst-performing
sector for four years in a row, from 1989 to 1992.
Most recently, everyone remembers the go-go years for large-cap growth stocks, when they outperformed from
1994 to 1999. After that period, they rolled over and
became some of the worst performers in 2000 and 2001.
So, even though no one knows what the new market leaders will be as we emerge from this recent bear market, a savvy investor might look to the
most recent underperformer, in this case, international stocks, which declined 21.44 percent in 2001. It really is what “buying low” is all about.
That said, international investing is not suitable for all investors and involves special risks, including currency fluctuations and political uncertainty. Foreign securities generally exhibit greater price volatility and greater risk of illiquidity than U.S. securities.
Contact a financial adviser in your area if you are considering investing in international stocks to see if they are right for your individual situation.
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 13, 2002
To: ‘Murray, Jonathan P.’
Subject: $
My 401(k) is losing money (about $400). Would it
be smart to transfer it to an IRA account for now?
FYI, I am 25 years old.
Wendell
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 13, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Wendell,
Since you are 25, I would advise you to keep your 401(k) where it is.
Sure, it has gone down in value along with the market, but you are young, and can withstand the fluctuation in the markets.
Make sure, though, that the funds you have picked within your 401(k) are well balanced, and that you aren’t just putting all of your money into one fund.
Your 401(k) gives you tax-deferred growth, and it reduces your taxable income at the same
time … two great reasons to add to it as much as you can.
> From: Goldstein, Jon W.
Sent: Tuesday, Aug. 13, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I am a government worker, so I have the Federal Employees Retirement System 10 percent Thrift but I would like get into something with moderate
risk. What would you recommend for the first time investor looking to build wealth?
Wayne
From: Murray, Jonathan P.
Sent: Tuesday, Aug. 13, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Wayne,
If you are in the TSP Plan at work, that’s a good way to build your wealth.
Make sure that you spread your investments throughout various funds (making sure to include the C, I and S.) If you still have monies left over to invest, consider starting a regular, systematic investment program, dollar-cost averaging into a diversified, balanced portfolio or fund.
Periodic investment plans do not assure profit or guard against loss in a declining market. Because dollar-cost averaging requires continuous
investment regardless of fluctuating price levels, investors should consider their financial ability to continue purchasing shares through periods of low prices.
