even open your brokerage statements. Seeing all that red can be sobering. For long-term investors, recessions should be viewed as chances to buy. “Smart shoppers know if you’re buying shoes or clothing, you buy when they’re on sale,” says Raiford of MetLife. “The professionals look at downturns as buying opportunities.”
Don’t panic: In March, Fritzi Woods, president and chief executive officer of PrimeSource Food Service Equipment in Dallas, received her monthly brokerage statement. It showed a $6,000 loss in one fund alone, almost as much as she’d gained on the investment in the previous quarter. “I get nervous when I see my funds go down,&
quot; she says “I wanted to go into cash.”
Her husband, Tim, 48, a procurement consultant for the federal government, is more aggressive. When markets dip, he sees opportunity. “Selling now, you’re guaranteed to lock in a loss,” he says. “It’s just a matter of time before the market corrects itself.”
As the market dips, try to fight against your instinct to flee. Individual investors have a lousy sense of timing. They usually buy shares when they’ve already had spectacular runs only to sell when they swoon. Fritzi, also 48, called her financial adviser, who reminded her of this fact. So she stayed put.
Take the guesswork out of when to buy stocks by employing a system of dollar cost averaging — purchasing a set dollar amount of stocks at regular intervals. That will enable you to buy stocks or funds at all different levels, getting more shares when prices are down.
Go to the sales: The market slide has taken a lot of wind out of inflated stock prices. Today, the Standard & Poor’s 500 is sporting a price-to-earnings ratio of 13 times forward earnings, well below the historical average of 17 times the index normally has. “There are a lot of industries within the S&P that have even lower multiples,” says Yardeni, the investment strategist. “They are being priced as though the sky is falling.”
Fritzi bought shares of GlaxoSmith-Kline and Bank of America last August. The stocks’ prices had fallen to the point she figured there was limited downside. “Of course you never know where the bottom is, but it seemed like a good price,” she says.
Stock up on staples: No matter what the state of the economy is, people still need to meet their basic needs. That’s why consumer staple companies tend to be, if not recession-proof, recession resistant.
The Woods’ adviser, Jesse Abercrombie with Edward Jones in Dallas, likes Wal-Mart Stores. “It’s extremely attractive from a valuation standpoint,” he says about the stock’s 18.53 times forward price-to-earnings ratio. “And whenever the economy goes into a recession, people aren’t buying Harleys, but they’re still going to Wal-Mart.” Apparently others agree; through mid-April the stock was up 19%.
Think globally: If you’re concerned about a lasting recession in the U.S. and think other economies may fare better, proceed with caution. That trend could be nearing its end. Over the past five years, the MSCI EAFE, an index of international stocks, was