Invest wisely

sset classes, including the 62 percent rally in the S&P 500 stock index from the March 9 low and the volatility that has followed in the stock market whenever an economic indicator's result is announced, an understanding of the dynamics taking place in the stock market can assist investors and Baruch students interested in determining where to invest.

On Oct. 29, the Dow Jones Industrial Average (DJIA) index rallied over 2 percent following the announcement of 3.5 percent increase in the GDP. This was followed by a 2 percent decline the following day, caused by the lower than expected consumer spending report. These wild fluctuations in the stock market have garnered the attention of professional and non-professional investors alike.

Index funds tracking varied securities such as Russell 1000 value and the FTSE NAREIT U.S. Equity Real Estate index have been on an upward trend since March. The Russell 1000 tracks the largest publicly traded companies in the U.S. The FTSE NAREIT U.S. Equity is the Financial Times Stock Exchange National Association of Real Estate Investment Trusts. This particular index (FTSE) tracks the performance of public companies deriving their income from Real Estate Investment Trusts.

"Stocks went down so much in a 12-month period, due to the severe [problems] in the financial markets, that many people thought the market was oversold." said Edward Malca, an economics and finance professor at Baruch College.

An oversold market is one whose value has "fallen too far and/or is underpriced," according to Investorwords.com, an online source of financial concepts.

Since investors found the prices in the markets, as measured by the indices, to be underpriced, demand surged and the prices increased to their current levels.

Even though investors are enjoying the upward trend in the value of their assets, there is a factor that worries investors.

"In the last 12 months the Federal Reserve has increased its [spending] and investors are worried that inflation can take place soon," said Malca.

During periods of inflation, raw materials tend to increase in price. Thus, investments in raw material commodities, such as copper, cotton and rubber, will likely rise as the inflation increases.

"Commodities are inflation hedges,'' Malca stated. The aforementioned commodities "... tend to perform well early in expansionary cycles," according to an article on Forbes.com.

Baruch students need to be able to differentiate between a quick trade and investing. Those who are willing to take higher risk in expectation of a higher return in the short run could be affected adversely if their bets go wrong. This might be too risky for a typical Baruch student. Instead, it is better to pursue long-term investments, for around 5-15 years, according to Malca.

"From a student's point of view, the best thing to do is to put their money into a Roth IRA and invest in a index fund of some sort, and leave it there for 20 years," said Malca. The reason for this choice is because in the ‘‘long term, in periods of about 5 - 20 years, stocks generally reflect the growth of the economy. They provide a return usually higher than banks, and bonds, over the long term."

The market turmoil has shown how easily wealth can be lost or created, so one should exercise caution when attempting to invest.