- The Washington Times - Monday, August 3, 2009

The “little guys” are coming back.

After a brutal bear market in which the Standard & Poor’s 500 Index plunged 57 percent, small investors were reluctant to open their mutual fund and 401(k) plan statements. Four months later, the stock market is 46 percent higher and may be a fit topic for cocktail party conversation again.

“Sentiments have improved,” said Brian Lipps, manager of the Charles Schwab Investor Center on K Street in Northwest Washington. “People want guidance now more than ever.

“I think that unfortunately it takes a shock in the market for people to take a step back and renegotiate their planning process.”

Investor Daniel Boettcher, who visited the Schwab branch Friday afternoon, said he expects the market rebound to continue. “Part of it is just my gut feeling,” he said. “I have faith in the American economy.”

The market at first glance looks like it has reached lofty heights with its bull run since March, but “it’s not all that high,” Mr. Boettcher said.

In fact, the S&P; 500 is still down 37 percent from its October 2007 peak.

Investors were pulling money out of stock funds late last year and early this year, but in recent months have begun putting it back at a modest rate, said Brian Reid, chief economist at the Investment Company Institute, a Washington trade association for mutual fund companies.

Baltimore-based asset manager T. Rowe Price and the Vanguard Group, of Valley Forge, Pa., are reporting strong cash inflows.

“People clearly in the second quarter were taking cash and reallocating it,” said T. Rowe Price spokesman Brian Lewbart. “We’ve started to see some movement, but there’s still a lot of money sitting on the sidelines.”

Stock investors continue to return to the market. The Dow Jones Industrial Average gained 8.6 percent last month, its best July performance in 20 years.

Fixed-income investors are also returning from the sidelines, asking Vanguard call-center representatives about ways to increase their yields, spokesman John Woerth said.

With money-market yields close to zero, investors can get a substantial boost in income with modest risk in a short-term corporate bond fund, he said.

Lew Altfest, of Altfest Personal Wealth Management in New York, said he can tell a lot from his clients’ phone calls - especially from those who are pretending not to be nervous.

“There are fewer frantic calls, and there are fewer calls in general,” he said.

“They ask, ‘Is this real? Now that stocks have come back, should I be taking my money out and waiting for a correction and then put it back in?’ ” he said.

“I’m advising people just to stay with what they have. Over a five-year period, we should get normal growth in the markets,” Mr. Altfest said.

“The market could have gotten ahead of itself a little bit and we could have a correction, but I’m not going to play the correction,” he said.

Christopher McDermott, vice president of retirement and financial planning at Fidelity Investments in Boston, said investors are beginning to pay more attention to their portfolios.

“They’re doing more research and they’re inquiring more about how and whether to make moves in their portfolios,” he said. “But it would be an overstatement to say that the memory of last year’s fourth quarter has been erased.”

Investors can ease their decision-making by maintaining a long-term perspective and a diversified portfolio, Mr. McDermott said. He urged investors to avoid jumping in and out of the market and to stick with an asset allocation that meets their objectives.

“If you’re 45 years old, sitting on cash is not the answer for reaching your retirement goal,” Mr. McDermott said.

Don’t wait for a correction to start moving back into stocks, he said. Getting your portfolio where it needs to be is not “chasing the market,” he said.

“You’ve got to get in the market so you can participate and not worry about 5 percent moves. The key is to get back to that allocation, whether you do it immediately or do it over time, but don’t take five years to get there.”

Katherine Timpf contributed to this report.

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