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Scrambled
nest eggs
Investment advice from a prof who’s a pro
By David J. Craig
It has been a daunting two years for the increasing number of Americans who invest their retirement savings in stocks and have watched the value of their nest eggs plummet. But even during a sluggish economy, retirement plans such as the 401k or the 403(b)(7) are good bets for those who intend to live off their investments one day, says Scott Stewart, an SMG research associate professor and deputy director of the school’s master’s program in investment management.
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Stewart Photo by Kalman Zabarsky |
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Stewart, who for more than two decades managed funds at companies such as Fidelity and State Street Bank before joining the SMG faculty last year, has published several papers on investment strategies and ways to measure the performance of investment professionals. He spoke with the BU Bridge earlier this month to offer investment tips and to share his outlook on the U.S. economy.
BU Bridge: What is a good investment strategy for employees
enrolled in the University’s 403(b)(7) retirement plan?
Stewart: As you get closer to retirement, you want to
gradually bring down the percentage of your money in stocks, because as
your assets grow you want more of your money in something less volatile.
You don’t want to get out of stocks completely, but you want to
increase the amount of your money in something safer, like bonds. People
might feel bad about the stock market right now, but if you’re not
going to retire for quite some time, the thing to realize is that you’re
now buying in at cheaper levels, which is good news.
BU Bridge: How has the behavior of investors changed
in recent years?
Stewart: There is a lot more information available today
that supports short-term trading, and I think the increased level of information
is good because it allows the market to adjust itself more quickly. The
downside is that people don’t use the information correctly: they
use it to make short-term judgments that they’re not qualified to
make, and that can really harm their return over the long-term. My experience
is you need to define an investment strategy and stick to that approach.
If you don’t define a strategy, human nature takes over and you
do the wrong thing.
BU Bridge: What is human nature when it comes to investing?
Stewart: People tend to sell low and buy high. My research
indicates that even professional investors have that tendency. It’s
important to recognize that it is extremely difficult to time the stock
market and to know exactly what the best investment is for right now.
It’s better to think long-term and have faith that the U.S. economy
will continue to grow and increase the value of your investments.
BU Bridge: Is it wise to have faith in the economy now,
when it seems so unstable?
Stewart: The economy needs people to be constantly buying,
and I think there is a huge demand for equity offerings. People are saving
for retirement, companies are saving for pensions, a lot of people are
saving for their children’s college education, and I think people
in general are more investment-conscious than they were in the past.
I must admit that I’m very bullish on the U.S. economy, and I think
its strength is how dynamic it is and how quickly it’s able to adjust.
Sometimes the changes are very painful and unfortunate because people
lose jobs and companies go out of business, but economies need to adjust
in order to move forward.
If an economy doesn’t adjust, it gets stuck. Just look at Japan,
where there are lots of big financial institutions that have been bankrupt
for 10 years, but people are in denial about the situation. You see a
similar thing in Europe, where a lot of companies get bailed out by governments
when they should be allowed to collapse. The beauty of the U.S. economy
is that companies aren’t bailed out by the government, and when
they are at risk of going bankrupt, their management typically tries to
do something about it, which might mean breaking it up and selling it
off. Companies don’t just keep limping along. And when the value
of something declines, prices are allowed to go down, which is important
for investors to be able to see.
To schedule an appointment to learn more about investments offered as part of the BU employee benefits package, call 353-4709.
15 November 2002
Boston University
Office of University Relations