FOR FRESH DOUGH, NOT MUCH RISE

It’s one thing to remind veteran clients of patience and taking the long-term view. But what if a novice walks in the office with, say, $250,000 to invest? That’s a different ball game.

“Our job is also to explain to them that avoiding financial disaster is more important than riding out the crest of this bull market,” says Robert J. Reed, a fee-only adviser with Personal Financial Advisers LLC in Covington, La.

For clients who are anxious to get off the sidelines – especially if they missed out on the past few years of double-digit returns – advisers are emphasizing more than ever the method of dollar cost averaging, which involves gradual investment rather than dumping it all in one shot. That way a client doesn’t risk losing a bundle on a market crash, because he’s spread his investments over dips and increases.

The stock market is a bit of a paradox now: The Standard & Poor’s 500 Stock Index closed at 1133.84 on June 30, up 16.84% year-to-date, but most of its stocks were at least 10% below their 52-week high.

How to avoid disaster? Some planners are he’s looking at the most relatively undervalued asset classes: namely, small- and midsize-company mutual funds. Mr. Reed likes Sound Shore U.S. Equity Value Fund, Rainier Small-Mid-Cap Fund, Babson Enterprise Fund and Neuberger & Berman Genesis Fund. “Historically, sooner or later these small stocks have to do well,” he says. “And what’s down now? The small stocks.”

Mr. Reed also suggests real estate, particularly real estate investment trusts. He’d put as much as 10% to 25% in those investments, depending on the client’s objectives. A suggestion: Cohen & Steers Realty Shares Inc.

Fee- and commission-based adviser Dennis Means, of Financial Services Network Inc. in Denver, says he’s very optimistic about the market, but the risks of a novice jumping in now don’t seem worth the little reward they might get.

His own study of aggressive growth funds found that their performance over 10 years was only three or four percentage points better than less risky growth-and-income funds. He’d park 60% to 70% of the $250,000 in places like Fidelity Growth and Income Fund and Vanguard’s Wellington Fund or its Windsor Fund. He also likes Janus Fund and Neuberger and Berman’s Guardian Fund.

“I’m not going to suggest they get very aggressive,” he says. “I don’t care at this point what they are age-wise.”