Riding Out Stock Market Storm A Better Bet

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As tremors continue to shake the financial system, the stock market has been reacting and careening. The Dow Jones industrial average is down more than 35 percent from its peak. And it keeps plummeting and rising back up by a thousand points in just a matter of days.

That's making many people queasy. Top investors say, however, this is probably not the time to sell your stock or make big changes in your retirement account.

Trying Not To Look

Marianne Boswell is a manager at a medical software company outside Boston. At lunch in her office cafeteria, she says that like many Americans she has been watching her savings dwindle. The last time she looked at her retirement account, she had lost around $80,000, about a quarter of her entire retirement portfolio. Boswell says that is a big hit. The 55-year-old single mother says she wants to put her 14-year-old son through college. For a while, Boswell says, she was often going online to check her investment account with Schwab.

What's "really disturbing," she says, is the result she gets on the Web site's retirement calculator when she checks to see if she is on track. "The numbers don't work anymore."

After working and saving her whole life, Boswell had looked forward to having some money to travel when she retires and to be able to afford to stay in the neighborhood where she lives. Now she's wondering if she will be able to do that.

"What I've done is I've stopped looking at my portfolio and stopped playing with the retirement calculators," she says.

That might sound like sticking your head in the sand, but many top investors say that's probably the best thing for most people to do. They say: Just think about the stock market as though you are driving past a car wreck. Keep going straight ahead and try not to look.

Boswell got some encouragement to do that from her financial adviser.

Phones Ringing Off The Hook

Katharine Manning, a vice president with Schwab, says when the Dow first started plummeting toward 8,000, it seemed as if all her 300 clients were calling at once.

"All the phones in the branch — nonstop," she says.

She says clients were panicked and wondered if they should be selling their stock. Many people have been. Investors have pulled billions of dollars out of mutual funds as the market has tanked.

"I try to remind clients that volatility does not equal loss," Manning says.

That means it's not a loss until you actually sell your stock. And it's probably a really bad time to do that after the market has just fallen off a cliff. Manning says if you sell, odds are you will miss the rally when the market recovers.

Investors Calming Down?

Manning says that in recent days, however, it appears that the panic has passed for most of her clients. They seem to be getting used to the idea of riding out the crash. And if fewer investors are selling, that makes it easier for the bargain hunters to push the market back up.

Manning's seeing some of them, too. She says a financial executive recently walked into the office and "handed me a check for $10 million."

He told her, "You are not going to see another buying opportunity like this in your lifetime."

Manning thought that was a good omen. Where did he invest the money? Broad-based index funds.

Those are funds that basically track the entire stock market. Many famous investors — including John Bogle of Vanguard funds and David Swensen, who manages Yale University's more than $20 billion endowment — recommend index funds because they have low fees and they spread out risk. Many also say average investors probably shouldn't be making any big moves right now, buying or selling.

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