Only the balanced survive

What's a wise investor to do in tough times like these? Choose a strategy that entails a level of risk you can tolerate, and stay with it, many experts counsel.

Investing is never easy.

But now, even as the global economy takes regular steps toward recovery, investors are wary of more land mines than usual.

Whether it is the weakening dollar, the potential for inflation caused by the huge economic stimulus, the massive federal debt, or the specter of consumers' clinging to their money and stunting economic growth, there is no shortage of worries.

"It's reached a level that I haven't seen in 25 years in this business," said Greg Merlino, president of investment management firm Ameriway Financial Services Inc., of Voorhees. "It's literally taking a physical toll on some people," he said.

The numbers indeed are painful: Between 2007 and the second quarter of this year, the value of direct stock market holdings by U.S. households fell $7 trillion, and housing values dropped $3 trillion, according to the Center for Retirement Research at Boston College.

Because of that wipeout, the portion of U.S. households at risk of not being able to maintain their standard of living if they retire at 65 climbed to 51 percent from 44 percent two years ago, the center said in a report last month.

Now, the problem many investors face is that a year ago, fearing financial Armageddon, they pulled their money out of the stock market after suffering huge losses and put it into cash and Treasuries. Then this year, many missed the run-up in stock prices and are feeling a frantic need to play catch-up.

Both reactions are mistakes, experts said, because the only way to succeed in the long term is by developing a balanced investment strategy that you can sleep with even in the worst of times and then stick with it.

"Our balanced portfolios are back to even," compared with 2007, when equity markets hit all-time highs, said Ronald M. Florance Jr., director of investment strategy and asset allocation at Wells Fargo & Co.'s private bank. Florance defined balanced as 40 percent stocks, 30 percent bonds, 15 percent real assets (real estate and commodities), and 15 percent in other types of investments.