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Financial experts: Use cautious optimism when investing

Financial experts: Use cautious optimism when investing

January 7th, 2018 by Philip Joens in Local News

Mikala Compton/News Tribune A screen next to the ATM outside Central Bank displays the market conditions. Financial advisors said despite phenomenal market conditions, people need to invest cautiously.

Less than a week into the new year, all three major stock indices set records as strong corporate earnings and recent tax reform measures buoy corporate confidence in the markets.

The NASDAQ Composite Index closed above 7,000 points for the first time Tuesday, and the S&P 500 closed at a record 2,695.79 points. The Dow Jones Industrial Average also closed above 25,000 points for the first time Thursday.

Despite the good market conditions, local financial advisers preached caution and patience Friday for people looking to invest before the next recession.

Travis Ford, a financial advisor with Wallstreet Insurance Group in Jefferson City, said although the market has done well recently, that trend could end abruptly. Ford said people should resist the temptation to jump in for the short term while market conditions are good.

"If anything, this may be a time for a more conservative approach," he said.

Chad Horton, a financial adviser with Wells Fargo Advisors' Jefferson City office, said timing the market for short-term gains is incredibly hard. Rather, as long as people have the time and money to invest in the market, they should do so regardless of present economic conditions, he said. Typically, he recommends being invested for at least five years.

"As long as you've got time on your side, with five years, you're typically going to get a full economic cycle," Horton said.

For years, financial analysts have been speculating on whether a tech bubble driven by currency speculation on bitcoin and high valuations for unprofitable startups could plunge the country into another recession.

Horton said the climate this time has many differences from the dot-com bubble that caused a recession in the late 1990s and early 2000s. For one, most tech companies large and small have healthy amounts of cash on hand, he said. Large debt loads also aren't a huge consideration for most tech companies right now.

Ford said, though, it's hard to tell when the next recession might hit.

"It's too early to speculate," he said.

In December, Congress passed a sweeping tax reform bill that lowered the corporate tax rate from 35 percent to 21 percent. About 20 companies in the S&P 500 raised wages or handed out bonuses after President Donald Trump signed the bill in late December.

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Ford and Horton said savings from the tax bill will help companies in the upcoming year. Strong corporate earnings will also help bolster the markets.

Horton said the benefits of the tax bill should then trickle down to middle-class investors and small business owners in Jefferson City.

"It's a big deal," Horton said. "The backbone of the economy is small businesses."

Given the good market conditions, though, Ford and Horton said people of all economic classes are investing right now. It can be easy to get started.

"If your employer has a retirement account, that's a good way to get started," Ford said.

Tools like Robinhood, an app that allows users to make commission-free trades on a wide variety of stocks, are making it easier for young people to start saving for retirement. Roth IRAs also allow people to make contributions of up to $5,500 of post-tax income to retirement accounts.

Horton said people can still contribute up to $5,500 to a Roth IRA account until they pay their 2017 taxes. These can be especially useful for young people with time to let the their investment grow.

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