Experts: Investors need to stick with long-term plans

One day the news is gloomy: oil prices up, stock market down, dollar drops, home prices plunge, credit market turmoil, recession looms.

The next day the news looks better: oil prices drop, stocks rise, exports rise, consumers continue to spend, recession may be averted.

In this environment of wild swings in the stock and real estate markets, where is the best place to invest?

“Go to quality,” advised Scottsdale economist Elliott Pollack.

If an investor is uncomfortable with the wild swings in the markets, Pollack said treasury bills and certificates of deposit offer a refuge, even at relatively low interest rates.

“No place will give you 10 to 12 percent,” he said.

Neal Van Zutphen, a certified financial planner with Delta Ventures Financial Counsel in Mesa and president-elect of the Financial Planners Association of Phoenix, said investors should ignore the day-to-day swings in the markets, which he calls “short-term noise,” and concentrate on investing for the long haul.

More specifically, he said the stocks of fundamentally solid financial companies that have been beaten down in the subprime market crisis could be good buys today.

As an example, he cited Citigroup, J.P. Morgan Chase and Bank of America. He said Citigroup pays a dividend of about 7 percent of its reduced stock price, which is higher than the cost of borrowing to buy a home.

“This is a company that is paying a dividend that is twice the rate of inflation and probably won’t go bankrupt,” he said. “If I’m thinking this will be retirement money 15 years from now, there’s a pretty good chance that 15 years from now it would have a higher share price.”

Van Zutphen said his company does not own Citigroup stock but does own J.P. Morgan Chase and Bank of America.

He said health care stocks are typically good investments in a recession because people still need medical attention when they become ill. Utility companies also typically perform well in a downturn, he said.

“People still pay their electric bills, and most utilities pay a nice dividend,” he said.

Housing prices also have been beaten down, of course. So is this a good time to buy a house?

That depends, said Pollack, who closely follows the real estate market. If you’re planning to move into your house and live there for five to 10 years, this might be a pretty good time to buy. But if you’re an investor wanting to make a fast buck, Pollack said it’s too early. He thinks housing prices could go down another 10 percent next year.

“This is a long-term situation; we have a long way to go,” he said. “The bottom may be six to 18 months away, but a full recovery is years away.”

David Wyss, chief economist for Standard and Poor’s, thinks investors can find relief by looking overseas. Foreign economies, particularly those in Asia such as China and India, will grow much faster next year than the U.S. economy, he said.

“For the longer term, the next few years, the U.S. may not be the best place to invest,” he said.

He also expects the dollar to continue to decline against many foreign currencies, which further enhances the attractiveness of foreign stocks.

“But don’t expect the returns of the 1980s and ’90s,” he said. “That was an above-average period (for stock market returns). Now we’re in a below-average period. It won’t be as much fun as it was in the ’80s and ’90s.”

James Glassman, senior economist for J.P. Morgan Chase, thinks U.S. investors can benefit from the faster growth overseas by investing in American companies. That’s because many U.S.-based multinational corporations are active in China, India and other developing countries that are growing rapidly.

“China and India are very open to us,” he said. “If you go to India, you can see American companies all over the place.”

Wyss agreed, saying that 48 percent of the revenue of nonfinancial companies in the S&P 500 index comes from outside the U.S.

“We don’t understand how global we’ve become,” he said.