Savings, careful investments can weather economic storms

Don Mecoy, Staff Writer

Published: April 27, 2008

Preparing for economic hard times is a key to successful investing, local experts say.

A word that crops up during nearly all conversations with investment advisors is diversification.

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Dennis Packard, financial advisor with Puckett Financial Advisors LLC in Oklahoma City, said a well-diversified portfolio of stocks of large and small companies, bonds, commodities and real estate protects investors during tough time.

“What we’re focusing on now is hammering into people is that times like this show the benefits of diversification,” Packard said. The varied investments don’t move in tandem, essentially “hedging” investors’ funds.

An investor who put all her money in stocks would have taken a pretty serious haircut in the first three months of 2008. But a portfolio comprised of stocks, bonds, commodities and other instruments almost certainly would have performed significantly better.

And, studies have shown, diversified portfolios flourish in good times even as they protect investors in bad times.

As John Huntzinger, chief investment officer for BOK Financial Corp. puts it, you should worry more about how much you have invested in stocks and in bonds than how much you have in Microsoft or IBM.

Packard said in tough times he focuses on cutting expenses for his clients.

Passively managed funds, such as those that mimic popular indexes like the Standard & Poor’s 500, tend to be considerably cheaper than actively managed funds in which buying and selling is performed by a manager or committee, Packard said.

Even though they’re cheaper, Packard said, the passively managed funds outperform 90 percent of the actively managed funds.

Margo Mitchell, president of Tulsa-based Consumer Credit Counseling of Oklahoma, suggested that many of us could use an even more basic tool to prepare for tough economic times — an emergency fund.

“I know the president will not agree with me on this, but the rebate checks are going out and I hope people will use that either to pay down debt or save it,” Mitchell said. “It’s like found money so it would be a wonderful way for people to start their savings to prepare for emergencies because emergencies are going to happen.”

Mitchell suggested a three-month to six-month cushion of savings.

“It doesn’t have to be $100 every pay period but it should be something every time,” she said. “Pay yourself first. Do it as one of your normal bills.”

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