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Jewish World Review March 27, 2001 / 3 Nissan, 5761

Patrick Larkin

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Consumer Reports

How to invest when the bears are afoot -- TWO things to keep in mind about the stock market: it usually turns up before the economy does; and, when stocks move up, they move up quickly.

"The stock market is a forward looking, anticipatory vehicle," says Bruce Berno, a Cincinnati financial planner. The stock market falls before the economy falls - and it goes up before the economy goes back up.

"We don't know when the economy will recover, but we do know that we want to be in stocks before they go up," he said. That's because when stocks move up, they do so quickly. You can lose a lot of gain if you're not in stocks when the rally starts.

So, what can you do?

First off, don't sell your stocks and mutual funds and hide out in cash. Follow your investing plan. If you haven't got one, get one.

An investing plan is a blueprint to achieve your long-term financial goals - retirement at 55, college for the kids, a house in Florida, whatever.

After you've set some goals, determine how much risk you can take and still sleep at night. The greater the risk, the greater the potential reward. But just taking on a lot of risk doesn't mean you're going to reach your goals. And, a lot of risk can lead to a lot of loss in times like these.

So, determine how much risk you're comfortable with. You can find tools to help determine your risk tolerance at Vanguard (, Fidelity (, Schwab (, Microsoft Money Central ( or Morningstar (

All of the sites also offer a range of other tools and information.

Once you've got goals that are achievable and know how much risk you can take on, you can come up with an investing plan.

Be sure you're diversified. Allocate some of your investment money to bonds, some to index mutual funds and some to stocks or stock funds. Invest in growth funds or stocks and value funds and stocks. You want to be in large caps, mid-cap and small cap stocks or funds.

Remember to have some money in bonds and some in cash - at time like these when we're in a bear market they usually provide a positive return. And don't forget international mutual funds.

How you allocate your money among investments depends on your time frame and when you need to convert your investments back into cash, notes Len Hausler, a principal at Cincinnati money manager Opus Capital.

Determine a percentage for each investment that you're comfortable with and stick with it.

Since small cap value stocks and bonds have been surging, you might find these make up a larger portion of your portfolio than your plan calls for. So reallocate some of your investments to those areas that have fallen, such as growth stocks.

This is called rebalancing your portfolio and you should do it regularly.

You don't have to sell your winners to get back into balance. You can redirect your new investment money to underrepresented areas of your portfolio.

Patrick Larkin writes for the Cincinnati Post. Comment by clicking here.


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