Losing sleep over the market, part 2

Are you a risk taker?

A gambler?

Welcome to today’s stock market.

In the past few weeks, the market has set a record for the number of 400-point swings, down and up. They’ve left my stomach a little queasy. Perhaps you’re feeling the same way.

I wrote a column after the f

irst major drops in the Dow Jones Industrial Average. Since then, the Dow came back to where it was, then dropped big time Thursday and dropped some more on Friday of last week.

In the previous column, I said that I planned to ride out the roller coaster market, believing that my investment choices were pretty conservative and not subject to crazy swings.

I try to take the long view. Many of my individual stocks are boring, plodding utilities that pay good dividends that I use to buy more stock, not flashy companies. Everything else is in fairly diverse mutual funds.

I’ve seen the charts.

During the last 80 years, the market has made a mostly steady upward climb, with a few dips here and there. That’s why I still plan to ride out the storm.

But I don’t think I said enough in the previous column and that what I did say was too simplistic. A couple of people called to thank me for what they viewed as calming comments. One caller pointed out that I gave no specific reasons why someone else should do what I was doing.

He referred to the market as “broken” and suggested that my plan to batten down the hatches could cause people to lose some serious money.

I don’t agree that the market is broken, certainly not irreparably, but I thought the caller was right when he suggested that the column was long on platitudes and short on specifics.

Guilty as charged.

Just to be clear, I wanted to write about what I was doing, not what I thought others should do. I’m not a trained investment advisor. And my tolerance for risk is pretty high.

What I think you should do right now is spend some time thinking about your own risk tolerance and about your own investment goals. Then talk to people you trust about what you’re feeling, perhaps a real investment advisor, and act accordingly.

If the market swings we’re experiencing are keeping you awake at night, you should be putting at least a portion of your investment money somewhere else.

And where should that be?

As I said, I’m not comfortable with telling you exactly what you should do. But I can tell you what others are doing.

Most people are sticking with their 401(k)s, but the market’s mood swings have prompted them to pull a lot money out of individual stocks.

“During the down in 2008 and early 2009, you saw what we’re seeing now … people are getting out significantly, and they are mostly going to stable-value funds,” Pamela Hess, director of retirement research for Aon Hewitt, told McClatchy Tribune Information Service.

Aon Hewitt is a human resources firm and consultant that compiles data on 100 retirement plans administered for its clients.

Hess said people are sticking with their retirement funds but switching to more conservative investments.

Vanguard, which handles a large number of 401(k) plans, agreed.

Only about 2 percent of the participants in Vanguard plans have chosen not to stay the course. The vast majority, Vanguard’s Linda Wolohan told McClatchy, “are taking no action and are staying put.”

The same thing is happening at Fidelity Investments, the largest 401(k) plan administrator with more than 11 million participants. “When it comes to your 401(k), one of the most important aspects is the asset allocation,” spokesman Mike Shamrell said. “We did find people are becoming a lot more balanced in their approach, which the hope is they are better prepared to weather the ups and downs.”

Mutual funds certainly aren’t the only option for investors. There are bonds and also a variety of financial instruments. Banks offer a wide variety of places to park your cash — CDs, high-yield checking accounts and the like — but those pay so little that they’re only a short-term option at best.

Investors are putting a lot of money into gold, which set price records last Thursday and Friday. Gold attracts a lot of people who view it as a tangible safe haven for their money.

I rarely buy anything that is selling at record prices because the odds that it will go down in value are pretty high. That hasn’t been the case for gold during the past couple years, but gold’s big run can’t go on forever.

So that’s why I’m sticking with the hand I have, partly because I think it should avoid major price swings and probably even more so because I don’t like the other options.

But you don’t have to be like Mike. You should be evaluating your own situation and making your own choices.

Mike Benbow: 425-339-3459; benbow@heraldnet.com.