The subprime crisis has triggered a tumultuous year for the stock market. The Dow Jones Industrial Average has hit a record high 34 times, and the U.S. stock market has swung 2% or more on 20 days. That said, The Wall Street Journal turned to a dozen leading investment executives for their take on what investors should take from 2007.
Dan Fuss, vice chairman of Loomis, Sayles, said investors should be sure to keep steady and only reallocate their portfolios if their goal has changed or the movement of an asset class is just too volatile.
Diversification, agreed Fidelity Magellan Fund Portfolio Manager Harry Lange, is key. “There have been broad disparities in the performance of various sectors in 2007. However, many diversified fund investors who stayed the course were able to achieve positive returns,” Lange said.
Bill Gross, chief investment officer of PIMCO, warned that repercussions from the subprime fallout are still yet to be felt, and that because asset-backed markets will not recover for some time to come, this will cause further problems in the credit and housing markets, with housing prices and even the value of the dollar falling further. Thus, Gross is recommending that investors increase their international holdings.
John Bogle, founder of Vanguard Group, said he is also very worried about the “enormous volatility” and advises investors to gently scale back on their equity holdings in favor of bonds, but echoed the sentiment that it would be a mistake for investors to let their emotions get the better of them. It’s far better, Bogle advised, to buy and hold. “The stock market is a giant distraction [from] the business of investing,” he commented. That said, Bogle cautioned that it can often lead to trouble when an investor puts their money in an instrument, such as the derivatives tied to the subprime loans, that they do not understand.