Business

Saturday, Nov. 07, 2009

Slow, steady is how to rebuild savings

DALLAS — At the height of the recession and the tumult in the stock market, many workers were stunned to see their 401(k)s shrink to 201(k)s.

How badly your retirement account was hit depended on several factors, but the average 401(k) plummeted 24.3 percent in 2008, according to the Employee Benefit Research Institute.

Now that the economy and market are recovering, it’s time to work on rebuilding your investment portfolio. Here are some steps you should take to rebuild your investment portfolio now that the economy and market are recovering:

Take it slow

Many consumers might understandably still be scared that the market might take another deep dive. So should you get back in now?

Sure, but do it cautiously.

“I talk to people who say, ‘I’m still a little nervous,”’ said Brian Bruce, director of the ENCAP Investments & LCM Group Alternative Asset Management Center at Southern Methodist University. “Timing is an incredibly difficult thing for people.”

Get back into the market in baby steps by using an investment strategy called dollar-cost averaging. That’s where you buy securities in fixed dollar amounts at regular intervals, regardless of what direction the market is moving.

That way, as stock prices rise, you’re buying less, and as prices fall, you’re buying more.

“Don’t have this as, ‘I’ve got one bullet,”’ Bruce said. “Divide it up into four or five or six months and stick to a discipline and average yourself into the market over time.”

Avoid too much risk

Don’t pour all your money into high-risk investments hoping to rebuild your balance in one quick strike.

“Trying to make up for lost ground by taking more risk can be like stepping on the gas to drive out of a mud hole,” said Rick Salmeron, certified financial planner at the Salmeron Financial Network Inc. in Dallas.

“More risk equals more odds that you’ll lose money,” he said.

Also, look for investments whose risk level matches your level of tolerance.

Diversify, diversify

Follow the time-honored, old-fashioned principles of investing.

“They should have a diversified, balanced portfolio,” said Ed Butowsky, managing partner at Chapwood Capital Investment Management LLC in Addison, Texas.

Salmeron agreed.

“Many who weren’t diversified before (the market meltdown) got clobbered,” he said. “Diversification does not protect from loss; it can help minimize the losses.”