8 smart moves to recoup your losses

Closeup of stock certificate

Experts say one of the worst bear markets ever is probably over.

So what should you do now to recoup your losses?

Here's what some savvy investment advisers are telling their clients:

Smart move 1. Get back into stocks.

During the bear market, a large number of investors were scared out of the stock market, says Rick Ferri, CEO of Portfolio Solutions LLC in Troy, Mich.

Not only was the value of their portfolio going down, he says, everything around them was falling apart as well -- their jobs and future earnings were insecure, their home equity was disappearing.

With stress rising around them, many decided selling stocks was the easiest way to reduce it, Ferri says.

But, he says, "If an individual jumped out of the market because they couldn't handle the stress anymore, then they didn't have the right portfolio."

The stock market is now stabilizing, he notes, and the real threat of a complete meltdown of the U.S. economy is over. Equities must be part of your portfolio in the long term, because they provide growth.

"The real trick is figuring out what is the right amount of equity so you're not going to go and do something that's going to hurt you in the next downturn," Ferri adds.

Smart move 2. Have a well-diversified portfolio.

You should be prepared for a rocky recovery that includes a falling dollar and rising inflation.

"You need a portfolio that will survive in all economies," says Rick Kahler, president of the Kahler Financial Group in Rapid City, S.D. "That means diversifying and spreading your bets against various economic scenarios."

Kahler suggests investing 10% of your money in commodities, 10% in a real estate investment trust, 10% in Treasury Inflation Protected Securities, 10% in a market neutral fund, 10% in a global bond fund, 20% in a U.S. stock fund and 30% in international stock.

The advantage?

"You're not going to be tied to the success of any one asset class," Kahler says.

And the key to surviving, and thriving, in any kind of market is to have one asset class on the uptick in case another is in the tank, he says.

Smart move 3. Invest in banks.

While not every bank is an appropriate investment, not all banks are in dire straits, either, says Jacob Eisen, president of Capital Insight Partners of Chicago.

He notes that most banks -- even those he would consider high quality and well-run -- are trading between 20% and 50% of tangible book value.

"The banking sector is being valued at levels that we haven't seen since the Depression," Eisen says.

In the long run, when the economy has recovered, and banks are trading only at book value, the return on investment could be significant.

"We don't need the boom of the late '90s or anything like that; we just need to get back to some sense of normal operating environment for banks," Eisen adds.

Smart move 4. Pay off debt.

Low interest rates make today's market a good time to pay off debt -- if you have extra money, says Ann Logue, author of Socially Responsible Investing for Dummies, Hedge Funds for Dummies and Day Trading for Dummies.

"Whenever you owe interest at a rate higher than the market, it is worthwhile to pay it off," she says.

Logue points out that if a bank will pay you 1% on a certificate of deposit and you have a 6% mortgage, then paying off your mortgage nets you more money from saved interest than you would get on the CD.

But if we had inflation and CDs were paying 8% and your mortgage was just 6%, then you'd be better off with the CD, she says.

On the other hand, she says, if you don't have much of an emergency fund and expect a job loss, hang onto your money.

Smart move 5. Take advantage of low prices.

Not only are interest rates really low, prices are falling, too, Logue says. Appliances, furniture and real estate are all at good prices.

"This is a situation known as deflation that is relatively rare -- and not good in the long run," she says. "But if you have both extra money and a need, this is a great time to spend."

When the economy picks up, Logue predicts these things will all go up in price due to pent-up demand.

Smart move 6. Don't shun real estate.

"Every individual needs a piece of real estate for living, working, shopping or a place to recreate, like gyms," says Chris Brown, real estate investment adviser for Envoy Capital in Burlington, Vt. "Real estate is always a necessary component of everyone's lives."

After so many people lost money in the real estate market, real estate investing has fallen out of favor, he notes.

But most who got burned bought at the height of the cycle, when the market was flooded by investors attracted by good but not economically sound financing, Brown says.

Those who had long-term goals came out OK, especially compared with those who bought real estate assets based on greed or for quick appreciation of the principal.

"As a real estate investor, you have to have long-term goals," says Brown, who looks at principal appreciation as a secondary approach for recommending real estate investments.

Real estate should be purchased first for the cash flow and tax benefits, he says.

Smart move 7. Municipal bonds are still solid bets.

Municipal bonds offer a tremendous opportunity to get a comparatively solid return in today's market, says Christopher Ure, senior vice president of investments for UBS Financial Services Inc. in Boca Raton, Fla.

Ure points out that concern over states and municipalities, including the fear that California might default on its bonds, left many people rushing to U.S. government bonds at the expense of municipal and corporate bonds.

But the risk profile of municipal bonds is often misunderstood, and investors can benefit from their tax-free yield, Ure says.

In other words, a portion of your income will be insulated from higher income tax rates, which many financial experts believe are impending.

Municipal bonds also offer considerably lower default rates than corporate bonds, he says.

Investing in municipal bonds through a mutual fund is key, because a professionally managed portfolio will provide diversification and safeguard against default concerns, Ure adds.

Smart move 8. Avoid "hot" mutual funds.

If you held off on investing during the bear market, don't be lured now into in a "sure thing," says Rebecca Schreiber, certified financial planner for Solid Ground Financial Planning in Silver Springs, Md.

By the time a "hot" mutual fund gets to the public, she says, it's likely already been bought up by market specialists, who are waiting for the public to pile on so they can make the money.

"When you're looking for a sure thing, that's when you're going to get the least result," Schreiber adds.

Instead, she advises to look for an investment built on solid numbers -- like a low expense ratio -- instead of a good story.

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