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Even as stock market soars, financial planners urge balanced investing

The stock market has soared to record highs this summer, while bonds have suffered a rocky ride.

So how should investors react

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The stock market has soared to record highs this summer, while bonds have suffered a rocky ride.So how should investors react?Many Central Florida financial planners are telling clients to maintain an age-appropriate balance of stocks and bonds — even though bonds suffered a historic sell-off in May and June. Some are suggesting portfolio tweaks to better take advantage of the surge in equities.”I had one client who is in her 70s who begged me to get her out of bonds entirely and 100 percent into stocks,” said Cary Carbonaro, a certified financial planner in Clermont for United Capital Financial Advisers. “I had to fight with her to make her stay in bonds even a little bit.”Carbonaro and other advisers aren’t ignoring bond jitters, given the likelihood of higher interest rates in the future. Most client accounts’ bond holdings saw losses in May and June.As a result, many advisers have now shifted their clients’ bond holdings to bonds with short-term maturities so they won’t be stuck when interest rates do rise.”We’ve encouraged people to keep their money safe in bonds by going shorter term so they have less interest-rate risk and less volatility,” said Michael Clark, a wealth-management adviser in Orlando with Raymond James Financial Services Inc.Clark said it makes no sense to lock into 30-year bonds, which are at historic lows. Instead, one- to three-year bonds or bond funds are the better way to go right now, he said.Advisers say they have used the recent bond sell-off to educate clients that, in a sense, all bonds are not created equal.”From a portfolio planning and investment perspective, it is critical to know that all bonds do not react the same way to rate changes,” said Susan Spraker, founder and president of Maitland-based Spraker Wealth Management, in a recent commentary to clients.Shorter-term and floating rate bonds are affected less when rates go up, Spraker said.As for stocks, what moves should investors make — once they have resisted the urge to put all their money in equities? Advisers say that depends on the usual factors of age, risk tolerance and window of time left before retirement.Long-term investors with a near-term retirement goal of about five years should consider a slight shift to stocks, focusing on dividend-paying blue chips and other strong performers in sectors such as financial, energy and health care, planners say.A 50-50 mix of stocks and bonds, for example, may become 60 percent stocks and 40 percent bonds, “to get in on the current positive momentum of the stock market,” Carbonaro said.On the other hand, investors with a longer window of about 10 years or more before retirement may take a more aggressive tack: a mix of 70 percent stocks to 30 percent bonds or more, advisers say.There are some buying opportunities out there — stocks with high growth potential — that could boost a portfolio, said financial planner Al Baker, chief investment officer of the Resource Group of Winter Park. He pointed to mid-caps — emerging growth companies with established sales and promising markets — many of which can be found on lists such as the Russell Midcap Value Index.”Mid-cap is an area that still has something left in it; where there is still possibly significant upside,” Baker said. “Otherwise, I would say the market in general is going to be pretty flat, with maybe a few jumps and dips, through the rest of the year until the fall, based on historic trends.”Finally, there are some alternative investments in real estate and commodities that may be worth a look, though not gold funds, whose day has now passed with the improving economy and huge drop in gold prices, advisers said.”We’re using some investments, such as Real Estate Investment Trusts, to fill the hole once occupied by bonds,” said Frank Arnall, an Orlando financial adviser for United Planners Financial Services. “And we have also looked at overseas equities, buying opportunities in Europe, South America and India. Basically, we don’t expect U.S. stocks, with a few exceptions, to show any dramatic changes through the end of the year.”For Carbonaro, balance is key.”Unfortunately, people have very short memories about how quickly things can change in the stock market,” she said. “I’m trying to have them hold on to what they have, not sell off or abandon diversification and their asset-allocation strategy.”
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