What the experts say

The herd is back

“Contrarian indicator alert,” said Jason Zweig in The Wall Street Journal. It appears that the same retail investors who “bailed” on the stock market in late 2008 are now buying with a vengeance. So far this year investors have added about $32 billion to stock mutual funds and exchange-traded funds. While it’s “no stampede,” advisers are seeing a “troubling” trend of risk-averse investors hoping to compensate for selling at the bottom. “They’re willing to risk more in the hope of not being losers again,” says Michal Strahilevitz, a professor at Golden Gate University in San Francisco who studies investor behavior. That’s fine if you have what it takes, emotionally and financially, to sit tight the next time the market takes a tumble, but a word to the wise: If your risk tolerance wasn’t high two years ago, “chances are, it still isn’t.”

Health-reform winners

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Whatever your position on the health-care debate, you may be wondering how reform will affect your portfolio, said Susie Poppick in Money. As you should. The “business of medicine” accounts for 11 percent of the S&P 500, and over the past year, health-care stocks have languished: The price-to-earnings ratio for the sector is just 12, versus 15 for the market overall. Though the outlook is “murky” in insurance and managed care, “the new law may actually be a positive” for many health-care products and providers. Because this area will have many winners and losers—thanks in part to expiring patents on blockbuster drugs—actively managed health-care mutual funds, such as T. Rowe Price Health Sciences, may fare better than a “catchall” health-care index fund.

Invest locally?

Some investors are taking the buy-local movement a little too much to heart, said Larry Swedroe in CBSMoneyWatch.com. “The typical household has about 30 percent of its portfolio invested in stocks headquartered within 250 miles.” Many investors believe that local knowledge gives them an edge when it comes to investing, but data proves them wrong. A recent study found that investors with a local bias tend not to come out ahead, even when betting on small companies that aren’t widely followed by analysts. Apparently, investors too often confuse “something familiar with something safe.”