SALT LAKE CITY — The record-setting stock market may just be the best place to incubate your retirement nest egg, according to the top analyst for one of the nation’s largest investment firms.
Kate Warne, market strategist for St. Louis-based Edward Jones, said adding stocks to your portfolio will likely yield the greatest long-term return on investment.
Last week, the Dow Jones Industrial Average rose to its highest level in history, closing above 14,253.77. The upward momentum has prompted optimism among many investors and analysts as well.
“It may sound like a strange thing to do with the stock market at record highs,” Warne said. “But right now, the long-term outlook for stocks continues to be attractive because the stock market is pretty well valued.”
She said her research showed that earnings in the economy would continue to grow, “And those are the long-term drivers in stock prices.”
Warne is the Edward Jones’ investment strategist, interpreting market conditions and recommending appropriate long-term investment strategies to aid the firm's more than 7 million clients.
She holds a doctorate in economics — specializing in finance and competitive strategy — from Yale University, a master of science from the London School of Economics and a bachelor’s degree from Swarthmore College. She was a featured speaker at a conference of local investment advisers this week offering insight on national and global market analysis.
“At this point, we’re looking at the environment as pretty positive for investors,” she said. But she noted that market fluctuations will occur, sending values down for short periods. But those who remain in the market despite the occasional declines will benefit in the long run.
“What we want to sure about is that people putting money to work today don’t 'sell out' just because stocks drop at some point in the next year,” she said. “People should recognize that lower prices for stocks means you’re putting money to work at a better time.”
Warne said stock prices fluctuate regularly and, on average, tend to decline at least 5 percent about three times per year and at least 10 percent once a year. With that in mind, investors should learn to consider those instances as typical market occurrences, and take advantage to buy shares when prices are down.
For those wondering how to manage their retirement plan at work, Warne said, “Rule No. 1 is max your 401(k) contribution!”
She noted that the more money an individual can put aside today, the better off they will be upon retirement. She added that younger workers should invest a higher proportion of their retirement savings in equities — or stocks — because they tend to gain more value over the long haul. But that strategy would require a disciplined approach to “ride out” the highs and lows of the market, she said.
Those who are closer to retirement should invest more in bond-weighted funds that would be affected less by the volatility of the stock market. Middle-aged investors should consider something “in between,” but still geared more toward stocks, if possible, since those funds would have the highest return potential.
She also advised using education savings accounts to help for children’s college funding — which also grow tax-deferred.
As for overall savings, she said the typical household should try to have about six months of income set aside in cash at the bank or in other liquid accounts, such as Roth individual retirement accounts, that can be readily accessed when needed without a withdrawal penalty.
“In case you lost your job, you need to have short-term savings that isn’t allocated toward anything else,” Warne said. “It means you wouldn’t have to worry about how to pay bills.”
While she acknowledged the challenge many might face in saving that much, it would be well worth the effort and peace of mind “in the event something happens.”
Lastly, Warne said individuals should maintain diversity in their portfolio by investing in the U.S. and abroad.
“Add some international stocks into your portfolio as well as domestic choices,” she said. “Invest with a global perspective. What you want is a broad based, international mutual fund.”