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Advisers: Don't panic over market downturn

Thomas Crane still believes in the markets, but this week's meltdown made the New Port Richey retiree cringe over his portfolio.

"I don't even want to look at it — it hurts," said Crane, 75.

Bay area investment advisers say they're fielding lots of calls from worried investors. Their advice to people with 401(k) accounts and mutual funds? Don't panic.

Other questions and answers inspired by the week's events:

I'm worried — what should I do with my investments?

Investors worried over losses should speak with an investment adviser before making any changes. They should review the diversity of their holdings. If they represent a variety — stocks and bonds, large and small companies — the damage should be minimized and require at most subtle adjustments.

"Every client is different," said Bill Sieffert, senior vice president and portfolio manager at Northern Trust in Tampa, whose firm has made calls to soothe clients this week.

Investors should also consider their goals and financial needs. As long as cash is not an immediate need, most investors should be cautious of significant changes, said Ray Ferrara, president of ProVise Management Group in Clearwater. If you weathered the 2001 downturn, which was worse, you should continue to stick out this week's trouble.

"I'm getting calls from some people who want to pull their money out of the bank. I think that's ridiculous," said Scott Brown, chief economist at Raymond James and Associates.

What if my losses are steep and I want security?

Customers have every right to pull out of stocks if they are uncomfortable, Ferrara and Sieffert said. Federally insured money market savings accounts, CDs and Treasury bonds are among safer bets, but they're not foolproof. A major fund, Reserve Primary Fund, announced it lost money this week when its net asset value dropped below the $1-per-share benchmark. However, Brown said he considered that an aberration.

Are there reasons I shouldn't go with safer bets?

With lower risk, there's lower opportunity. Shifting to those investments means investors will benefit less when the market recovers. And bond yields are low, which means bond prices are high. That means investors could sell stocks low and buy bonds high, something to usually avoid, advisers said.

Part of benefiting from the average market means riding the ups and downs long-term. Welcome to the downs.

Should I do anything about CDs in excess of FDIC-insured amounts?

See if you can retitle a portion of the money in a way that brings you within the FDIC insurance limit. For example, if you have $200,000 in an individual account, could you put $100,000 of that in an account in your name "payable on death" to someone else? That person would have no access to the money while you are alive, but you would gain another $100,000 in FDIC protection. If that's not possible, ask how much the early withdrawal penalty would be to withdraw enough money to bring you below the FDIC insurance limit. It may be worth it so you can sleep better at night. Also, an early withdrawal penalty is tax deductible even if you don't itemize. And you may be able to put the money in another CD at a higher rate. Just keep it within the insurance limits.

Does the takeover of AIG this week hurt insurance policies I have with them?

AIG's general insurance business, which accounted for nearly half its $110-billion in revenue last year, has held up well. AIG says that its companies are the largest underwriters of commercial and industrial insurance in the United States.

Does the turmoil mean we'll enter a recession?

National analysts said they believe the economy will very likely not be able to avoid an outright recession given the latest financial shocks, which are expected to depress consumer spending even more. It was already weak in light of a rising unemployment rate, which in August hit a five-year high of 6.1 percent.

Information from Times files, the Associated Press, McClatchy Newspapers and the New York Times was used in this report.

Advisers: Don't panic over market downturn 09/17/08 [Last modified: Thursday, September 18, 2008 8:57pm]
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