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What should you do with your money now?

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    Spencer Platt - GETTY
    Traders work on the floor of the New York Stock Exchange at the end of the trading day Monday in New York City. The Dow Jones Industrial Average and S&P markets have experienced a pullback since the beginning of the year.
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    Daniele Donahoe, Rinehart Wealth Management
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    John Lynch, Wells Fargo
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    Kendrick Mattox, Edge Capital Partners
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    Don Olmstead, Novare Capital Management

If you took a look at your 401(k) last year, you probably liked what you saw.

But the start of 2014 has been a completely different story. The stock market has taken a bit of a plunge in the first few weeks of the year after a record setting 2013.

The Dow Jones Industrial Average is down nearly 5 percent so far. Nearly one in four trading days has seen a loss of 100 points or more.

The Standard & Poor’s 500, a broader measure of the stock market, is down nearly 3 percent.

It’s not much by historic standards, but the change has been something of a shock after the rally of the past two years. Financial advisers and investment professionals in Charlotte say it’s all part of a market functioning well.

“This is very healthy for the markets. This is very normal,” said Don Olmstead, managing partner of Novare Capital Management in Charlotte. “We do not think this is 2008 or 2009 all over again.”

What happened?

2013 was a banner year for the stock market. The Dow set record highs on 52 trading days, and topped 15,000 and later 16,000 for the first time. But the last three months of the year also set the stage for the current downturn.

Markets soared 10 percent as the Federal Reserve decided to hold off on winding down its massive economic stimulus. Normally, that’s the kind of jump you might see in an entire year. And while corporate earnings were good, they weren’t growing as fast as the stock market.

“At that point, we just needed a trigger,” said John Lynch, regional chief investment officer for Wells Fargo.

Such a trigger came quickly. Data from China showed the country’s growth was slowing. The Federal Reserve also started the long-awaited taper of its bond-buying program. Investors began taking their money out of the higher-volatility stocks that did so well in 2013.

“The pendulum swung a little too far toward the higher risk names,” said Daniele Donahoe, president of Rinehart Wealth Management in Charlotte. “You go that long without a proper correction, you’re just bound to have one.”

Part of it came from investors wanting to realize some of the price gains they booked over the course of the past year. Others sold stock to ease their tax burden. But in general, they wanted to make sure a rising market was sustainable over the long term.

“You’ve got people a little more cautious right now and taking profits from 2013,” said Kendrick Mattox, the Charlotte-based senior investment adviser of Edge Capital Partners. “They’re now in the wait-and-see mode to see if earnings are going to drive the market further.”

So what should you do?

But what should people do now? The first thing, advisers say, is not to get too worked up. There hasn’t been a correction in the market – defined as a 10 percent pullback – since summer 2011. There’s usually one every year.

And smaller pullbacks happen even more often. There’s been nearly a score of them since the markets began rallying after the financial crisis.

“This could be our 19th nervous breakdown,” Lynch of Wells Fargo said. “That’s the environment we’re in right now until people get a better handle on what’s happening.”

Most likely, advisers say, this market downturn won’t last. They say they’re still bullish on stocks over the next three to five years.

“People just need to take a breather and look at the markets and make sure that the fundamentals are still intact,” Mattox of Edge Capital said. “It’s kind of like working out or lifting weights. If you have a slight tear in your muscle after working out, it grows back stronger.”

In most cases, it’s most wise to stick to the plan, the advisers said. In some instances, the pullback gives an opportunity to put more money back into stocks.

“Now is the time to stick with what you have,” Olmstead said. “If you’re already invested, stick to your asset allocation. If you’ve got cash on the sideline, we think now in particular is an excellent time to get in.” Mattox also said he’s putting slightly more money into equities now that prices are lower.

Donahoe suggested taking a look at blue-chip companies such as IBM or Kellogg, which have grown more slowly in the past year. “We actually think there’s been some good buys out there,” she said.

But the overall message, as Lynch puts it: “Stay the course.”

Dunn: 704-358-5235; Twitter: @andrew_dunn
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