by Cynthia Harrington, CFA
The old hedge against insecurity is showing some life. Gold funds claimed seven of the top 10 spots among fund performers over the last year.
Terror at home and abroad compels some investors to seek refuge in the yellow metal, but CPAs don’t see the value.
"Gold funds are either really good or really terrible," said Dennis Gurtz, CPA, CFA, CFP, Dennis M. Gurtz & Associates, Bethesda, Md. "Anybody that’s ever buying gold funds is buying on speculation.
"Besides, if I did recommend anything, I’d recommend gold bullion. If the worst happens, you can’t bring in your account statement showing you own gold stocks to buy bread or fruit. They’d just laugh at you."
In fact, the response to greater insecurity in the world and on home ground after the Sept. 11 attacks is muted among advisors. Their clients aren’t streaming in to increase life insurance coverage, nor are they pulling their money out of the market to stick in their mattress. Advisors and their clients are more driven by market conditions than the presence of a terrorist threat or escalating tensions in the Middle East.
Adam Goddard, CPA, PFS, with Wheat First Union, in Washington, D.C., advises clients to allocate more to equities. Despite the fear of higher oil prices, Goddard is investing for the economic recovery scenario. "Before the attacks, we had been in a defensive position because of the weak economy," explained Goddard. "We responded to the massive overvaluations in 2000 by changing allocations. We’re more value oriented. I’m a CPA after all."
Goddard invests with a close eye on the economy. He pointed out that we have more and longer solid recoveries than we have bear markets or downturns. "Take away the Mideast conflict and the markets and economy look pretty good right now," he said.
Gurtz had his clients prepared with balanced portfolios focused on total return. The last six months he had some clients buying as stocks went down. For most, the insecurities made it easier for him to get clients to follow his advice. "It’s a little easier to get people to sign off on things like bonds now than before - and easier to get clients who are living off their investments to store two years’ worth of expenditures in cash or equivalents," said Gurtz.
One planner took action in an area she hadn’t touched in her 15-year career. "I created my own little fund of defense stocks," said Mary Katherine Dean, MBA, CPA/PFS, CFP, at Mary Dean, CPA, in San Diego. "I bought defense stocks for myself after 9/11 and recommended that clients put in just a little bit, around 5 percent."
There’s only one mutual fund currently participating in defense stocks. That’s Fidelity’s Defense and Aerospace fund. With the 3 percent load, Dean favored buying the stocks direct. "I never buy individual stocks," Dean pointed out. "But Boeing was cheap and Lockheed looked good. But they’ve gone up too much now to buy for new clients."
If anything, advisors have made little changes. Gurtz no longer uses the post office to send packages. With an office near an anthrax-threatened post office, too many perfectly packaged letters came back with green stickers requiring that he show up in person to send the parcel. Now, they use Airborne for packages. And Dean increased allocations to energy. "We always own energy but we just bought a little more as a hedge against rising oil prices," she said.
Dean also handled situations for clients who were touched personally by the 9/11 attacks. Two clients are current USAir pilots. Their fear was for the safety of their retirement plans and their source of income if USAir went under along with other airlines. "I got right on the phone to verify all the information," she said. "The next time I’d wait until the worst happened. The job isn’t really threatened until then."
The prevailing tone is optimism and perseverance. "Anyone living in D.C. who hasn’t already moved out feels pretty confident that the world isn’t coming to an end," said Gurtz. "One certainty I proclaim is that if the world does come to an end, investments won’t be worth as much as they are today. If it doesn’t, then probably what you buy today will be higher 10 years from today."
Goddard chose to be optimistic, too. He pointed out that there’s always a doomsday scenario. "In 1994, there was the peso crisis. In 1997, the Thai baht collapsed. We’ve lived with a nuclear presence since 1945. We can’t live our lives in fear of attacks. People in Israel have lived their lives this way for the last 53 years and they just go on. We have to just go on."
Some of optimism is inherent in a long-term view of financial management. A comprehensive plan incorporates disaster protection, no matter when the plan was originated. All of Dean’s clients walked through a scenario of a nuclear war and other disasters when they first started working with her. "We live in California with the threat of an earthquake disaster, so we consider downside risks of all sorts," said Dean.
Balanced portfolios, tailored to the client’s goals and risk tolerance seem to be the antidote to the fear of terrorism. "You have to have exposure to all asset classes," said Goddard. "People swing too far one way then too far the other. Usually, when events like this happen, there are contrary indicators of what will happen in the market. That’s why we’re in the mode of putting more money in the [equity] market."
The attacks do underscore the need to plan, however.
Dean pointed out how few people took advantage of the Financial Planning Association’s offer for members to donate planning services to WTC victims. "Once the attack comes it’s too late," said Dean. "The trust hasn’t been set up for the children’s education, no guardian has been designated, life insurance coverage wasn’t increased."
Said Dean, "Besides prudent investing, what are they going to do? Put their money in a mattress?"
