Wall Street's Ups And Downs Leave Investors Worried
Wall Street's Swings Leave Investors Worried
It's been a volatile couple of weeks on Wall Street. With all of the major stock indexes down more than 10 percent since mid-July, individual investors are wondering what they should do.
When was the last time you checked the movement in your brokerage account, your 401(k) or IRA?
With all of these wild movements in the markets, it can be scary for investors. "Rightly or wrongly when they hear of the volatility, they're probably logging online into their accounts more frequently, which is probably not a great idea," says Michael Mussio, a portfolio manager at FBB Capital Partners. The firm manages money for individual investors, many of them retired or close to retirement age.
The phones have been ringing more than usual at Mussio's office in recent days, particularly on those days when stock prices slid dramatically into the market's close.
"We're seeing a global kind of repricing of risk assets right now," he says. "And I think outside of the daily volatility the thing that's making people anxious is the speed with which we've seen it. It's literally been the last 11 or 12 trading days, which is kind of crazy."
But Mussio has a simple message for his clients and other investors.
"I think the main thing is — don't panic," he says. "If you feel the urge to panic, it's usually that feeling, it's the fight or flight that causes somebody to sell at the bottom and causes somebody to buy at the top."
Q&A: Advice For Investors
Matt Goff is an investment adviser in Houston. His firm primarily handles the investment portfolios of private individuals, including 401(k) plans, deferred compensation plans and company stock options. Below, he offers advice for some common investment questions.
I have a 529 college savings plan for my daughter, who is starting college next year. The money is invested in a stock index fund. What if the money won't be there when she needs it?
"I think a lot of these questions are a function of a person's individual circumstances," he says. "So the first question to ask is, when does this money need to be used? It would be an issue if they needed money right away. What other resources are available — scholarships, student loans? It may be better off to defer using that fund until later years in college."
With the stock market up sharply one day and down sharply the next, how much should I be worried about my retirement nest egg?
"You should worry if you are already retired," he says, adding the reason for this is that you will be taking money out. "But if you don't need the money for 10 or 15 years, this is actually good news for you because you're a buyer. You can buy things at lower prices, which means lower risk."
I've heard that my portfolio should include investments in international stocks, but I'm worried about the effect of the European debt crisis. It seems like most of the world stock indexes are down. Should I stop investing in global funds?
"Investing in international stocks is a good thing if you are in it for the long term," he says. "You shouldn't be investing in domestic or international stocks unless you're in it for the long term. There is no way to know what will do better on the short run, and no way to know what horse will be further down the track right out of the gate. It's a good thing to have some international exposure."
For someone just starting off, should I be worried about the state of my 401(k)? And if I haven't started a 401(k) plan yet, is now a good time to start? Or should I invest my money elsewhere?
"If you're just starting out, you should be going all in — they should be as aggressive as they can," he says. "That being said, someone who is just starting out, and who has a lot of complications — like do I pay off my credit card or put money in a 401(k) plan? Pay off the credit card.
"But, if they've paid off all of their debts they should do three things: One, start tracking expenses with a computer program, like Excel. Two, develop a savings account with a minimum of six months of living expenses, and put the maximum you can afford into a 401(k) plan."
-- Chelsea Keenan
Don't panic, don't panic. It could be the motto of financial advisers everywhere this week.
Ted Davis, with Ameriprise Financial, runs a financial planning practice in Fairfax, Va.
Davis says he hasn't gotten as many panicked calls as he might have expected. But he's been reaching out to his clients to keep them calm.
"This is a very emotional time and therefore they need to understand the role that emotions play as they're making investment decisions," he says. "I think we all know that we don't tend to make good financial investment decisions in highly emotional times — you know, whether we're exuberant or very, very nervous."
One of the reasons Davis isn't getting bombarded is that he and his clients have a plan. That's the whole idea behind financial planning after all.
"We're not flying blind. We're not throwing darts at the board," he says. "We do have a plan. The world is not predictable, but the plan is built so that we can react to an unpredictable world."
Realize The Market Will Fall
His clients' investments are diversified. Davis says it's not all stocks, or bonds, or commodities, or cash — it's a mix, including some that tend to be countercyclical.
"You want to add some asset categories that are going to zag when the other investments are zigging," he says. "You just want to have some offset there."
This might include precious metals or agricultural commodities. The key is to have a diverse portfolio so that in a bad patch not everything takes a hit all at once.
Jane Bryant Quinn, a personal finance columnist, says she's "been hearing from people. But of course they say, 'What should I do now?' And my answer is how come you weren't thinking about this before?"
"Stock market panics are normal," she says. "This is the third one we've had in the past 10 years. And so when you're looking at what you're doing with your money, and suddenly you say, 'Oh, I'm shocked, look at what just happened,' I say, 'I'm shocked that your plan did not consider the fact that the market would fall as well as the fact that the market would rise.' "
But Quinn says thanks to all of this recent experience, she thinks it won't be so bad this time around.
"A whole lot more people plan for bad days now," she says. "I think they learned a lot of lessons in 2008, 2009. I don't think they're in such bad shape."