Financial Advice

 Editor’s Note: Financial adviser Robert Solley is back to answer questions posed by readers about investments and the economy for 2009. Have a question? Send yours to Bob.Solley@smhcapital.com.

Q.With all the volatility, should I rethink the buy-and-hold strategy, at least short term?
A. I think it’s important to stick with a long-term strategy and maintain a properly diversified portfolio. However, I do not believe it is wise to simply buy and hold especially during difficult times. We have already seen many household names go under, and I'm sure many more will follow. I would recommend using a more "managed" approach in this environment, whereby you follow your positions closely and trade a little more actively, taking advantage of the market's volatility.

Q. How do you think the economy and market will do in 2009?
A. I think 2009 will continue to be a difficult year for the economy. I expect many companies will have layoffs as they try to cut costs during the slowdown. Consumer spending is expected to remain sluggish, especially in higher ticket items. The credit crisis continues to affect the ability for individuals and companies to borrow, and many debt-ridden companies may not survive. That said, the stock market leads the economy by six months or more, so the market usually starts to recover halfway through a recession. At some point you will see a disconnect between the economic news and the market, whereby the market rises in the face of bad news.


Q. My mother is 65 and, although she has some assets, she is worried about the cost of long term care. We have looked into LTC insurance but the premiums are expensive and could really eat up a lot of her savings over her remaining life, what do you recommend?
A. There are a few companies that now offer a hybrid product that combines the safety of a fixed-rate annuity with the protection of a LTC policy. Generally the way it works is your Mom would deposit a lump sum of money and would earn a guaranteed rate of return. In the event she needs to use the money for long term care, the policy would pay three times the current value of the policy. If LTC isn't needed, the money can be used by your mother or later passed to her beneficiaries. I think this hybrid product makes a lot of sense for people who want some LTC protection but don’t want to shell out a large annual premium payment for insurance that they fear may not be necessary.

Q. If I were to invest into some stocks for the long term, what strategy would you recommend?
A. For those who have money and time on their side, it’s a wonderful time to invest. I expect the market to remain volatile, so I would only invest money that you can leave in the market for at least three to five years, possibly longer. I would then work with your adviser to put together a balanced portfolio. It’s a great time to start up a wish list of the top companies in the sectors that you would like to own. Many stocks are trading in a range as the Dow swings from below 8,000 to the mid-9,000 level, so use limit orders and buy on the dips. In addition, many companies are paying great dividend yields, and for those that can maintain them, the dividend provides a good return while waiting for the market to improve.