January’s rollercoaster plunge reminded investors that there is still risk in stocks despite the record-setting climb on Wall Street all throughout 2013.
The Dow Jones Industrial Average lost 878 points in January, a 5 percent loss. The blue chip stock index rallied this month, and most of the loss has been recovered. The Dow Jones closed at 16,103.30 on Friday, about 338 points off 16,441 at the start of the year.
Will Caywood, a financial adviser with Augusta-based Fehrman Investment Group, said that although 2103 was a great year for investors, this year will bring a needed degree of volatility back to the market.
“I think that this hiccup in late January, early February was good for the markets and created an opportunity for some investors to get back into the market,” he said. “There had been volatility the previous several years and 2013 didn’t have any.”
And 2013 was a banner year for the stock market. The Dow set record highs on 52 trading days, topping 15,000 and later 16,000 for the first time.
The S&P 500 climbed nearly 30 percent in 2013 to its best year since 1997.
Caywood said he foresees 2014 bringing in returns near the 8 percent to 10 percent mark, though it likely will be a more stressful year than 2013.
“Our clients are in it for the long haul and that little blip didn’t mean nothing,” said W. W. “Buzz” Hankinson, of Hankinson Wealth Management. “To receive the gains in the market, you’ve got to be able to withstand the ups and downs.”
At AP Wealth Management in Au-gusta, partners Pat Fair and John Rhodes said a blended investment portfolio can garner the biggest returns and avoid headaches of investing wholly in the vacillating stock market.
“Therefore, we expect to increase our allocation to equities when presented with opportunities like the recent decline,” said Rhodes, chief investment officer at AP.
“We perceive opportunities of 20-plus percent returns in both the energy and information technology sectors, while financials and utilities appear to present more downside risk than upside opportunity,” he said.
He said they are avoiding low-yielding bonds while seeking attractive yields in structured notes, master limited partnerships and real estate investment trusts.
Data from China showed the country’s growth was slowing. The Federal Reserve also started the long-awaited tapering off of its bond-buying program. Investors began taking their money out of the higher-volatility stocks that did so well in 2013.
“The pendulum swung a little too far toward the higher-risk names,” said Daniele Donahoe, president of Rinehart Wealth Management in Charlotte, N.C. “You go that long without a proper correction, you’re bound to have one.”
Part of it came from investors wanting to realize some of the price gains they booked over the course of the past year. Others sold stock to ease their tax burden. But in general, they wanted to make sure a rising market was sustainable over the long term.
“You’ve got people a little more cautious right now and taking profits from 2013,” said Kendrick Mattox, the Charlotte-based senior investment adviser of Edge Capital Partners. “They’re now in the wait-and-see mode to see if earnings are going to drive the market further.”
But what should people do now? The first thing, advisers say, is not to get too worked up. There hasn’t been a correction in the market – defined as a 10-percent pullback – since summer 2011. There’s usually one every year.
And smaller pullbacks happen even more often. There’s been nearly a score of them since the markets began rallying after the financial crisis.
“This could be our 19th nervous breakdown,” Lynch of Wells Fargo said. “That’s the environment we’re in right now until people get a better handle on what’s happening.”
Caywood said now is the time for people to review their asset allocations and make adjustments where needed. His firm, he said, may take a slightly more conservative approach in looking at accounts, with the expected return of volatility and clients wanting to take profits earned over last year.
“I think that being cautiously optimistic will be a good strategy this year,” he said. “I think that picking good solid investments will be the key to achieving good returns this year, where last year virtually everything went up in value with stocks.”
McClatchy Newspapers reports were used in this article.