Bay Area Investors Look For New Strategies – Financial Advisers Say More Diversified Holdings Needed

Oakland Tribune, September 15, 2002

Sunday, September 15, 2002 – It’s easy to look back fondly on the innocent days of the late 1990s, when conversations at water coolers, restaurants and BART trains around the Bay Area revolved around that hot new dot-com IPO, or that promising telecom stock.

But given the stock market’s 21/2 year-decline, pleasant memories of the good years can’t exactly pay for your retirement. So many local investors are looking for professional advice to help give their portfolios a makeover, shifting away from investments in the stricken technology and telecommunications sectors toward more diversified holdings.

Investment gurus and financial planners have long advised people to spread their money among different kinds of investments. Diversification is a basic investment strategy, but one that many investors ignored. These days, planners say, people are actually starting to pay attention. “I try to get them to forget about the price that they paid for those investments,” said Gary Smith, a Pleasanton-based certified financial planner. “Let’s just think about the future possibilities. Where is your best place to put your money now so that you have the best opportunity for it to grow in the future? That means diversifying properly.”

Tom Field, manager of the Charles Schwab office in Castro Valley, said customers really started paying attention to the need to diversify around the fourth quarter of last year. After the Sept. 11 attacks, he said, people realized that the stock market might not rebound anytime soon and started talking to Schwab employees examining their holdings closely. “People said, ‘I don’t think I can do this by myself. I think I need some professional help,’” Field said.

One common diversification strategy, highlighted by the National Endowment for Financial Education ( is to place 40 percent of a portfolio in stocks, another 40 percent in bonds and 20 percent in bank or money market accounts.

On its Web site ( , Charles Schwab gives six sample diversification plans.

The least aggressive plan, to be used by investors who need their money in the near future and have a low tolerance for risk, advises investors to put 40 percent of their money into bonds and 60 percent into cash. The most aggressive plan, for those with the highest tolerance for risk and the longest investment horizons, advises 95 percent stock, 5 percent cash and no bonds. It advises dividing up stock investments among large U.S. stocks, small U.S. stocks and international investments. The remaining four model portfolios are somewhere in between.

Eric Flett, a portfolio manager at Bay Isle Financial in Oakland — which advises people of high net worth — said investors are looking to diversify into classes of assets that they haven’t owned since the early 1990s. Those include foreign stocks, real estate investment trusts, bonds, rental properties and other real estate.

“I think a lot of people made mistakes because of the success of large U.S. stocks in the late 1990s,” he said. “People were under-diversified, and that was a mistake.”

As a rule of thumb, he said, investors should have no more than 5 to 10 percent of their savings invested in any one company. Many investors still have a large portion of their assets in technology or telecommunications, hoping against hope that those stocks will rise again. But Flett said other sectors of the economy — such as the health, financial and industrial sectors — will likely have a brighter near-term future.

Flett sees many investors these days as falling into one of two categories — “ostriches,” who are ignoring the market’s decline and doing nothing, or hopeless romantics, who are aggressively buying stock because it seems cheap.

“Either they’re totally ignoring things or they’re going off the deep end and buying things for no reason,” Flett said. Instead of buying stocks with little logic, financial planners advise investing with discipline. Many investment experts tell their clients to stick with mutual funds — because they allow investors to buy hundreds, or thousands of stocks.

They also advise people not to stick with funds that focus exclusively on large U.S. companies, instead adding funds that invest in small-company stocks and foreign stocks.

One danger in today’s investment climate is that some people are so turned off that they want to avoid stocks altogether. Joyce Franklin, a San Francisco-based certified financial planner, said she has seen people who were 100 percent invested in the stock market two years ago and have converted entirely to cash.

“When the market does turn around, if they are not properly diversified, they are going to miss out on that big uptick,” she said. “They’ve just been too fearful to go back in, but they don’t know what the right answer is.”‘

Along with many experts, Franklin believes that over the long-term, investing in the stock market is the best way to stay ahead of inflation. “If investors can stomach risk in the short term, they’re still better off investing in equities than holding cash and bonds,” she said.

Alan Zibel can be reached at or (925) 416-4805.

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