Shifting Fortunes - Page 2 of 7

Shifting Fortunes

“After two or three quarters of seeing losses on their statements, they’d had enough,” says Brackens. “Investors must be aware of their emotional makeup so they know how much risk they can take. For Brian and Xandria, it was time to pull out of the stock market.”

Brackens recommended that the Pollards hold some cash as well as shares of Loomis Sayles Strategic Income (NEZYX). The fund, which holds a mix of foreign, U.S. government, and junk bonds, has produced excellent annualized returns for the past three years, making it one of the best in its category. “It looks like the market is doing better and stocks have recovered a bit,” says Xandria. “Now [we can think about increasing] our investments in stocks. Even though we’re still conservative, we’re willing to take some risks to get higher returns.”

To that end, Brackens plans to suggest some stock funds to the Pollards. Her recommendations will include Oakmark (OAKMX), which holds the stocks of large companies, and State Street Research Aurora (SSRAX), which specializes in small companies. So-called “focus” funds invest in relatively few companies so investors get the fund manager’s top picks. “No matter how many equity funds they choose, I will advise them to invest through dollar cost averaging,” says Brackens. “If you invest a certain amount each month, you’ll buy more shares when the prices drop and you won’t run the risk of putting in all your money at a peak price.”

Brian is willing to tiptoe back into stock funds. “Even if we become more aggressive, we’d want to keep a substantial amount—perhaps one-third of our investments—in cash and fixed income. We like to know that at least one-third of our money can’t disappear,” he explains. When it comes to stocks, the Pollards say investing in mutual funds adds another layer of protection. “We don’t have time to stay on top of individual stocks,” says Xandria. “With mutual funds, you have a diversification of companies so you won’t lose as much if one company goes under. Mutual funds are safer and more reliable.”

The extended bear market also made an impression on Samona Johnson, 35, a buyer of aircraft parts for a manufacturer and distributor in Cleveland. “I was nervous when I saw the market keep going down,” she says. “I’m investing primarily for my retirement. Even though that’s a long way off, I know I’ll need money from my investments if I want to be comfortable.” Although her apprehensions made her cut back on stocks, Johnson didn’t abandon equities altogether. Her portfolio’s asset allocation is now around two-thirds stock funds and one-third bond funds, with holdings such as Putnam Growth and Income (PGRWX) and Putnam U.S. Government Income (PGSIX).

“It was important that she kept investing,” says Johnson’s adviser, Jesse Brown, president of Krystal Investment Management in Chicago and author of Pay Yourself First (Wiley; $14.95). “The worst thing you can do is stop investing, because you’ll either spend the money or hold cash which won’t yield very much. Recently,