As markets reopen, investors have to resist panic


Dollars & Sense

September 16, 2001|By EILEEN AMBROSE

Since the U.S. stock market's closure after Tuesday's terrorist attacks, brokers and financial advisers say they have received only a few calls from panicked investors wanting to bail out of stocks. Most advisers report that clients are calm and sticking to their long-term investment game plan.

Baltimore-Washington Financial Advisors in Ellicott City, for instance, sent a letter to clients the day after the attack about the outlook for the market and what sectors are likely to bear the brunt of a drop in stock prices.

One client e-mailed back: "I want none of my assets sold during the country's time of crisis and mourning. We should not play into the enemy's hands."

Market experts say it's hard to know how investors will respond when the market reopens, although many expect heavy selling of shares initially and a flight to the safety of short-term bonds. Then again, some say, stock buyers may rush in, too.

"Wall Street has a habit of turning conventional wisdom on its ear," said Chuck Carlson, chief executive of Horizon Investment Services Inc. in Hammond, Ind.

Whatever happens, experts are advising clients not to panic in what is likely to be a volatile market for some time.

"The market will react in the short term to any type of disaster, whether it's a presidential assassination, a gulf war or an attack right there on our own front door," said Gary T. Padussis, first vice president with Legg Mason Wood Walker in Towson.

"Nothing has changed as far as our economy goes. Pfizer still exists. Heinz still exists. Microsoft still exists," he said. "People are at the factories working."

Investors should step away from the events of the moment, remember what they are saving for and develop a prudent plan to meet those goals, said Gus Sauter, portfolio manager of the Vanguard 500 Index Fund, the nation's largest index fund.

"For most people, if they are saving for retirement, what's happening today, while tragic, really isn't going to affect them 10 years from now. It should play out in the economy long before that," he said.

Besides staying calm, experts recommend investors also:

Look at history. "The average investor would probably be surprised to learn that following periods of crises, the U.S. market generally recovered to post significant positive returns," said Phil Cook, a financial planner with Cook & Associates in Torrance, Calif. That goes for the gulf war, Richard Nixon's resignation, John F. Kennedy's assassination, Cuban Missile Crisis and the Korean War.

Check their portfolios and asset allocations. "It's a good time to review your portfolio ... to reassure yourself you're in the right places," said David Root, chief executive of the financial planning firm of D.B. Root & Co. in Pittsburgh.

Root and others recommend that investors keep an eye out for quality companies whose stock prices might fall to attractive levels in coming days.

"If history is any guide, it will be the most profitable decision you will make. The millionaires of 2010 are those that have ... the guts to invest today," Root said.

Some experts, though, say certain stocks, such as shares in airlines, brokerages, insurers, hotels, restaurants and cruise lines, are likely to be depressed during the next year. Investors may want to cull their portfolio of these shares and use any losses to offset gains on their tax returns, experts said.

"Investors should watch these stocks carefully over the next few weeks and look for opportunities to reduce their exposure," said Saxon Birdsong, director of investments for Baltimore-Washington Financial Advisors.

"That doesn't mean because of a panic. Panic to me means selling without provocation or justification or a plan. Those stocks are clearly going to be hurt in this thing," he said.

Shun the gold bug. Many experts advise against long-term investors putting money into gold, which traditionally has been a haven during political and economic crises. The price of gold shot up overseas shortly after the attack, but those most likely to benefit from such spikes are short-term traders rather than long-term investors, experts said.

Control impulsiveness. "Don't make any rash moves in your 401(k)," said Jordan Goodman, author of Everyone's Money Book. "If it's long-term [money], keep it long term. Don't make short-term, rash decisions that you will be sorry about later."

Review insurance and estate planning. "It's a wake-up call for us to really examine our safety net," said Barry Glassman, a financial planner with Cassaday & Co. in McLean, Va. "What would happen if any of us were in that building?"

Would those dependent on your income be cared for or would your assets be handled according to your wishes? he said.

Keep a cash reserve. If you don't already have an emergency fund for unexpected expenses, start building one now. You don't want to be forced to sell stocks in a volatile market if you need cash quickly, said Michael Beriss, a financial adviser with American Express in Bethesda.

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