Get out and you may miss big rebound

It's all part of the fear and greed, buy-high-sell-low market mentality that grips the investing public every time the market goes through a radical swing.

That's not to say there isn't justification for that fear. The economy and financial markets are in uncharted territory and no one seems to know when the bad news will end. The federal government reported last week that the market downturn has already erased $2 trillion from retirement accounts. The financial meltdown is spreading around the world and the subprime mortgage crisis looks as if it could continue for a couple of more years.

But investment experts warn investors not to make any drastic moves in their portfolios. "Because of the emotion of a market like this, generally the more trading you do, the worse the results," says Marcus Winbush, general partner of Rochester-based Breneman Winbush & Associates. "Although we see a lot of stocks that look attractive from a valuation point of view right now, we still think there's probably more downside potential in the market than upside. We're not seeing trading based on fundamentals but based on fear. In this environment, all bets are off."

Although this may be a good time to reevaluate your portfolio, it's probably the wrong time for wholesale changes. "It may be a good idea now to tweak the portfolio or make an in-course correction," says Bruce Helmer, president of Wayzata-based Wealth Enhancement Group, "but this is not the time to take all of your money out of the market.

"In times like these, you need to ask yourself, 'what were my goals and objectives in the first place?'" adds Helmer, the author of "Money and the People You Love." "If those goals haven't changed, then don't change your investment portfolio. If you're in stocks, it's because you are a long-term investor."

Looking for a turnaround

Why keep your money in a market that seems to be a bottomless pit? Because when the worm turns, the stakes can be enormous. "That's why Warren Buffett is buying right now," says Winbush. "He sees the fear in the market and he knows that after the market hits the bottom, stocks tend to have a very strong rebound.

"Historically, when the stock market bottoms out," adds Winbush, "the average return of the Standard & Poor's 500 over the following 12 months is 43 percent."

When could we see a bottom to the market? "We're looking for a bottom in the next three to six months," he says. "If you look at recessions going back 100 years, they tend to last 11 to 12 months. This one could last two years, but we may already be eight to nine months into this recession.

"Stocks tend to bottom midway through a recession."

That's why it may not be a good idea to wait until the recession is over before you get back into the market. You could very well miss a dramatic run-up in the market.

"I don't believe in short-term predictions," says Helmer, "but my instinct is that we may already be scraping the bottom of the market. I expect 2009 to be a positive year."

Both Helmer and Winbush believe the market may get a bump right after the election.

"Historically, markets during an election year have tended to be very volatile with a market recovery after the election," Winbush says.

In the meantime, if you have cash to invest, what areas look promising? "We think there are some reasonable opportunities to pick up yield with high-quality corporate and municipal bonds," says Winbush. "We're seeing some Minnesota municipal bonds with yields of over 5 percent. We also like some high-quality corporate bonds from solid companies like Wal-Mart."

Helmer encourages long-term investors to stick to their strategy. "If you've been buying shares through dollar-cost-averaging, then keep the shares growing. When you look at your account statement, don't focus on the value, focus on the number of shares and keep those shares growing. When the market bounces back, the recovery will be very fast.

"When people talk to me about getting out of the market, my question is, 'When would you get back in?'" Helmer said. "They say, 'When it's better.' But by the time it's better, you've probably already missed the run-up in the market."

Gene Walden is the author of more than 20 books about business and investing. He lives in the Twin Cities. Send questions or comments to: gwalden100@comcast.net.