I sat down to coffee in the retirement lounge, recently, needing a time out. My head was spinning from my conversation with my stockbroker. Exasperated, I said to the woman next to me, “How can I leave my money in the hands of someone who approves of Donald Trump?” The woman, known for her wry humor, replied, “My broker doesn’t like Donald Trump.” By her expression, I took her to mean she had no broker and managed on her own money, thank you very much.
I realize not everyone owns stock. Not everyone has an IRA or 401K. My first acquaintance with stocks was decades ago when my stepmother inherited 10 shares of AT&T and a mink stole. She kept the wrap and, not knowing what to do with the shares, sold them for a song. That was before Ma Bell divided into smaller telephone companies. I can’t imagine what the value of those shares would be today, but I have a pretty good idea about the worth of that moth-eaten stole.
For those who do have money to invest, it’s hard to know what to do with it while the country is in such flux. As a Valentine to my readers, I’m passing along the advice of Carolyn Bigda. (“How to Brace Yourself,” Money, December 2016, pgs. 45-46.) She begins, as an advisor often does, with the words: “Don’t put all your eggs in one basket. Diversify.”
Bigda suggests the bulk of one’s investments should be in established companies, “Blue Chips,” that return part of their profits as dividends to shareholders. Long established, the stocks of these companies are relatively stable and their dividends are an added value.
A little risk should be included in a portfolio, however. Growth stocks are young companies with new products. Technology and bioresearch enterprises are an example. They don’t pay dividends because they plow their money into research and development in order to grow. The price of a growth stock is based on its potential to generate profits down the road. Tesla is a good example. The company is burning cash, but investors see it as a winner in the future. Bigda thinks growth stocks will do well in the current climate because our president is a businessman who will promote policies that favor growth stocks. The best places to find them are the Standard and Poor’s 500 Index (S&P). S&P lists small to mid-sized companies and since 1970, Bigda points out, they have either lost less or made more money compared to the NASDAQ or DOW. (Ibid pg. 46.)
Before jumping into the stock market, she offers one final caveat. Keep enough cash in savings to cover expenses for the next two years. Most advisers recommend six months. Bigda expects a bumpy road.
(Originally published 2/14/17)