Long-term silver lining

  • Saturday, September 29, 2001 9:00pm
  • Business

Associated Press

NEW YORK – Mutual fund investors have learned how to weather economic troubles and falling earnings, but many have never experienced the kind of political uncertainty created by the Sept. 11 terrorist attacks.

The thought of cashing in investments or halting 401(k) contributions might be tempting, especially amid the current anxious climate, but financial advisers say this actually is an ideal time for many investors to buy.

“We’ve had a couple of clients call and ask about stopping their 401(k) contributions, and we tell them absolutely not,” said Stephen Craffen, a chartered financial consultant in Fair Lawn, N.J. “Stocks and funds are sale now at low prices. … Long-term, you’re going to be glad you kept investing.”

In the case of mutual funds, some of the industry’s biggest names set new 52-week lows last week, providing an ideal entry point for new investors and a chance for existing shareholders to buy more shares at cheap prices.

For example, Vanguard’s 500 Index fund recently closed at a 52-week low and a 33 percent discount from the $134.59 high reached last September.

Fidelity’s Magellan fund closed Monday at $90.54, down a third from its 52-week high of $135.76.

“The market isn’t so great right now, but I’m pretty much a long-term investor and I feel like, in the long run, this will pay off,” said Wendy Shear, a 24-year-old financial analyst in Houston, Texas, who contributes 10 percent of each paycheck before taxes to her 401(k).

There is some thought that funds focusing on blue chips and larger companies, rather than small companies or business overseas, will do better in times of economic uncertainty and military buildup. But most financial advisers say that as long as a mutual fund account or 401(k) is diversified, investors generally don’t need to make too many changes because, over the long term, any losses and gains even out.

Those with a shorter-term horizon, such as an impending retirement or college tuition bill, might want to shift toward value or more conservative funds. But too much concentration in a single sector can make a portfolio more vulnerable should the market reverse course.

Some investors question whether actively managed funds have an edge over index funds when there is so much uncertainty.

But sometimes making the decision to buy can be harder than actually picking a fund.

That was the case in 1988, following the October 1987 stock market crash. During 10 months of that year, more money flowed out of stock funds than in, although the market was moving higher, according to Don Cassidy, a senior analyst at Lipper Research.

“When you have a big shock, the fear and hurt lingers on. People have lost money, and that’s a stronger driver emotionally than the desire to make a buck,” he said.

Luckily for those buying funds through 401(k) plans, there are other incentives: chiefly, that investors don’t pay income tax on such contributions up to a certain level depending on their income.

Also, many employers also contribute to their workers’ accounts.

Last week, Predicate Logic, a San Diego-based communications software firm, increased its annual contribution to full-time employees’ 401(k)s from 8 percent to as much as 10.92 percent of salary.

Company president Stephen Keller said the increase reflected a strong year for the company – as well as a desire to reassure employees following the terrorist attacks.

For employee Rich Sullivan, the extra contribution couldn’t have come at a better time. Although he was doing some investing on his own, his 401(k) has been suffering.

“My wife said this was the first positive news we’ve had all year,” he said. “This was a very nice thing to do and a great way to show confidence in the economy.”

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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