Financial Planning for Generation X & Y Women
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Expert Q&A Archive

What are the most common question people are asking our Experts during the economic crisis.
We would like to know the most common question people are asking you about the current economic situation and what your response to them is.
Dorothea Bernique:
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Question 1: Should I hold on to my stocks or sell?

Answer: My favorite answer to most questions is, “It depends”. If you don’t know your markets, you’d better know your investment advisor. Not being an investment advisor or stock broker, I can only say, “Proceed with caution”. Generally, those who stayed in the market post October 1929 did very well indeed. Same thing after the 1987 fiasco, selling in a down market usually means you lose.

Question 2: How long will it take us to recover, and can we expect soup lines again?
Answer: I see real fear these days. No one knows how long it will take to recover. Certain safeguards are in place now that were not in place in 1929. Soup lines already exist, the issue is who must take advantage of them. It did not take very long at all to recover after the1987 market decline.

Question 3: Who can fix it, McCain or Obama?
Answer: You’ve got to be kidding! I wouldn’t touch that one with a ten-foot pole!
Sharon P. Hardy, CFE:
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Unequivocally, I believe the number one question that people are asking and worrying about is: "Is the money that I have worked so hard and tried to save or used to fund the investments that I have made, over the years, safe today, as well as in the future?".

My answer would be: "even though the current economic climate appears to be very gloomy and highly volatile, I firmly believe that it will stabilize, by the end of the 2nd quarter 2009 and be able to bounce back up to an acceptable level. This current situation, which the United States' and global financial markets are facing, makes us all recognize the real need for effective, prudent oversight and regulations that promote sound business practice in the way we conduct business in all sectors of our economy".
Tony C. Yang CFP®, ChFC®, CRPC®:
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1. When will the downturn stop?

I don't know. But let's flash back to 10/19/1987. Also known as black Monday. The Dow Jones Industrial Average closed down 22.6%. Can you guess what the closing value of Dow Jones was? About 1,700. Over the next 21 years, the world witnessed the Savings & Loan bailout, Mexican peso crisis, 9/11, etc. and we still managed to pull away with about 21% per year growth to close at 9,258.10 as of 10/08/2008. The point is, the market seems to find a way to advance.

2. What should I do with my investments now?

Given what is going on today, one can easily make the decision of selling investments and going into cash. I don't blame you for thinking that way. It is just human nature. However, because the market tends to find a way to advance, it may not be the most effective method especially if you have time on your side. Therefore, if you constructed your portfolio based on a time horizon, your risk appetite, and diversification, you can consider staying where you are or rebalancing your portfolio.

Rebalancing is a way to adjust your current portfolio percentages back to the initial percentages when your portfolio was created. ex.

If you started with 50%/50% in stocks and bonds and now your holdings are 47%/53% stock and bonds, you can consider taking the 3% from the bonds and redirect into stock to bring the portfolio back to 50/50. This might sound crazy but I think investing is all about having discipline rather than being emotional.
Elizabeth Rusnak:
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People regularly ask me if they should change their retirement plan allocation, or move their money into bonds.

My answer has been: If they are retiring within the next 5-years, then moving their money into a safer investment may be wise. However, if they are 10 to 20-years from retiring, keeping their portfolio well diversified will serve them best.

But in the long run, consult a professional tax advisor.
Elizabeth Goldsmith:
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Main question: What am I going to do?

Answer: Cut spending, save money, invest securely with CDs and treasury bills, stay the course, keep putting money in retirement funds with employer match, buy and hold, do not panic, improve your education and skills, invest in yourself, stay employed or get employed, talk with family, financial advisors including accountants, and friends, read and watch financial news but do not react quickly, size things up, consider the source and the motivation.
Jerusha Ramos:
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The most common question is: Should I sell my investments and put my money in cash?

My response has been: The changes we are seeing in the market are drastic and may be long lasting but they are not permanent. Look at your specific situation because it is unique and decide based on the following:

1) Do you want to sell because your investment is worth at least 10% less than what you paid for it or do you want to sell because you do not like to see the numbers go down? Solid investments are still a good choice to keep since their price is only being affected by the market not inherent risks within that specific company or industry it’s a part of. In that case, it would be a good idea to buy more at its current discounted price.

2) What is the purpose of the money you have invested and how soon do you need it? If it’s long term (7 yrs or more) you have time to see the market come back and you can afford to sit and wait. If it’s short term (2 yrs or less), put most of the money in a more conservative investment for now.
Wendy Weiss, Ph.D.:
expert info »
The first questions that people have asked as the stock market is crashing and consumers are cutting back on their spending:

Question 1: What can we (investors) do?

Answer: Sit down; assess where you are, and what would make the most sense to do right now. I suggest developing a PLAN for your investments (in fact all of your money) is the best thing to do. Make careful decisions about your spending and saving, Also make careful decisions about your contribution level to your 401K and IRA.

With regard to 401Ks and IRAs: if you are certain that your job is very stable, continue contributing to your 401K at work. When you decide on the destination or your new contributions for this year and next--that is what fund you want to receive your contributions-- select the fund that is the most conservative, preferably one that contains U.S. Treasury Bonds, Notes and Bills. (Most people select a fund based on the performance for the last year or 3 years. This is likened to driving forward but looking in the rear view mirror. So take some time to review the mutual funds available to you and make sure you send all your new contributions for 2008 and maybe 2009 into the most conservative ones.

For your IRA contributions, you have some more options. In a period of rapid change, I would suggest that you deposit your IRA money into a savings account with FDIC insurance, perhaps a CD with that kind of insurance. Once again, you are likely to have selected more aggressive funds. So it is time to start investing in more conservative securities. If you pick CDs, don’t be tempted to lock that money up with a 20-year or even 5-year maturity date. Interest rates are likely to change and so will market conditions. So you want some flexibility. Go for a shorter maturity date and/or a CD that has a small or no penalty for cashing out before the maturity date.

(If there are changes and the Federal Government decides to back ALL ACCOUNTS held in all institutions with some kind of insurance, you do not have to move to a Bank Side IRA. But do consider investing your retirement money in safer investments this year.)

As for money that you have already contributed to and invested in 401K and IRA accounts --and you have been doing so over the years, see my answer to the next question.

Question 2: Should we sell (stock or mutual funds) now? Why wouldn't we sell now?

Answer: Most people, who do not have professional advice, wait until a down or bear market hits the newspaper and TV headlines to sell. So they sell when the market is at or near its lowest point, and they lock in their worst losses. In other words, you have chosen to get your cash out at about the worst possible moment.

Professionals advise you NOT to do this. They call this panic selling. And they remind you that you can NOT time the market. That means, you never know when the market will go back up. And you don't know if the market will continue its slide downward.

Given this information, consider carefully whether you want to sell now when everyone is panicking. You can wait a bit. There are 2 reasons to do so.

1) The market can recover, and
2) When the market recovers, it generally moves a LOT in a single day. So if you try to guess when to move in and out--you are likely to MISS the days that provide the most positive moves, and the greatest gains of that year.

However, if you have not RE-BALANCED YOUR PORTFOLIO, selling some percentages of your holdings may be worth it. That is, if you are too heavily weighted in stocks, or have held HIGH-Yield (read Hi-Risk) Bonds, and the money in stocks and high-yield bonds is higher than your target allocation, sell some and move to another asset class. In other words, TAKE SOME TIME TO RE-BALANCE YOUR PORTFOLIO in both your 401K and IRA. (Once again, most people select a fund based on the performance for the last year or 3 years. And they pick performance that was high. Since markets move in cycles, last year's great performers can be the worst this year. So select mutual funds that will create a portfolio that fits your risk tolerance. )

At this juncture, most people are less comfortable with RISK than they were a year ago. And many Baby Boomers are closer to retirement than they had been a few years ago. If you fit either of these 2 categories, you can shift into more conservative investments. This is especially important for Boomers. As you near retirement, you should begin to put more of your money into conservative bonds-- like Treasury Bonds, Treasury Bills, and Treasury Notes. That is because you do not have so many earning years to add money. Losses are likely to be more permanent. So reduce your exposure to losses by moving toward safer investments. Treasuries have historically been called "RISK-FREE." So try to hold more in Treasuries. Consider TIPS (Treasury Inflation-Protected Securities) too.

So take a deep breath, sit down and think about your holdings. Then move in a rational way to safeguard your future.
Michael A. Masiello:
expert info »
Mostly, what to do now. Is this the bottom? When will this end?
Most are scared, concerned, and uncertain about the future.

My primary response, [though] difficult to follow, but the correct advice is the following: We will rebound and recover. The world is not ending. We don't know when [the rebound will occure], but we are very confident that it WILL happen. The most important thing is to stay the course and don't panic now. Most of the losses have already occurred, so why get out now? The other consistent advice is to control those things that we can, watch spending, build up emergency reserves, reduce debt, don't incur unnecessary expenses, turn off CNN and other gloom and doom TV talking heads, continue to save and invest, don't PANIC.

Together we will get through this difficult period and ultimately be in a better position. We just don't know when or how long it will take. The human emotion is to do something. Often the hardest thing to do is nothing but continue to invest. This is the logical not emotional response; hard to do, but the right thing. Mike
Rebecca Schreiber CFP®:
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The big question I get is, "What is going on?" to which I can only answer, "I'm not sure." There's little transparency as to exactly which securities have lost value and exactly how the recent legislation is meant to fix it. Other than that there have been lots of questions as to how the credit crunch is affecting credit scores and budgeting strategies to build up emergency funds.