Advice for edgy investors
Published 11:28 pm Monday, September 15, 2008
The past 48 hours on Wall Street don’t make a good case for staying calm as an investor.
Lehman Brothers filed Chapter 11, marking the biggest investment bank failure in 18 years. Troubled Merrill Lynch sold to Bank of America. And AIG, once the world’s largest insurer, confirmed its financial problems are getting worse.
That all happened Sunday. On Monday, the stock markets responded with a resounding thud. The Dow Jones Industrial average fell 504 points, the sixth- largest point drop ever and the worst since Sept. 17, 2001, the first trading day after that fall’s terror attacks. The Standard &Poor’s 500 fell 59 points, or more than 4.7 percent, and the Nasdaq index fell 81 points.
It was the kind of day that can cause teeth-gnashing and nail-biting among even usually steady investors.
“Uncertainty in the market is a very powerful thing,” said Terry Heys, president of Sound Financial NW in Lynnwood, adding that he heard from an unusual number of his clients Monday. Heys, along with financial planners and brokers, said they didn’t get too many calls from clients wanting to pull out huge amounts from the stock market. Instead, they mostly got calls of concern and questions.
“I think people have been so conditioned to weather these markets. Mostly I’m getting the question: Is this the bottom?” Heys said. For the record, he’s pretty sure the markets will fall lower in the coming weeks and months.
Kathleen Hansen of LPL Financial in Snohomish said her clients aren’t panicking, but they’re concerned, especially those either already into retirement or growing close to that time. Hansen said younger clients actually seem more adjusted to the stock markets’ volatility and risk, as that has been more the rule than the exception in the past decade. Also, time is on their side when it comes to watching investments grow.
Hansen said the old adage of “sell high and buy low” still is valid, meaning now is a horrible time to pull out of the market.
“People think sometimes of their invested money as sand in an hourglass that’s running out. But it’s more like a herd of cows,” Hansen said. “You still own as many shares, or cows, as you did before, the price of beef is just down.”
Sound Financial’s Heys said he thinks recent volatility means the era of “buy a good mutual fund and hold” is gone. He said investors may have to be more active to avoid losing their investments.
Scott Smallman, senior vice president of investments at Wedbush Morgan in Seattle, said bad times on Wall Street are a good reminder of the need to periodically take a look at how your 401(k) is invested.
“What everyone should be doing with their 401(k) every three to six or 12 months is to adjust those balances (between different fund options) to where you want them,” he said. “Don’t pull the ostrich act, stick your head in the sand and not review your investments, tempting as that might be.”
Other than that, however, he’s not a big believer in major changes for the casual investor just because the market is going through rough patches.
Hansen said she advises her investors to make sure their investments are aligned with their tolerance for risk. If you’re not willing to risk a big loss, maybe it’s time to shift some money.
One point of agreement among the experts: It’s not time to invest in banks or financial service firms in general.
“I would be very cautious about buying individual bank stocks right now,” Hansen said.
Smallman said investing in more conservative stocks isn’t a bad idea, given that there could be more economic pain ahead. Consumer staples — stocks like Campbell Soup, Kimberly-Clark and Procter Gamble, for example — usually do well when others are down.
So, after a 500-point drop, is it time to pick up some bargain stocks? Heys said he would not recommend rushing in at this time. Things will probably get worse before they get better, he predicted.
So, take a breath, review your investment portfolio and maybe consult an expert. But don’t make any rash decisions, Smallman said.
“It’s never time to panic,” he said.
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
