Fri August 12, 2011
Wall Street's Ups And Downs 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."
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."