North Coast experts advise investors to weather storm
Trading was frantic Thursday on the floor of the New York Stock Exchange. Stocks fell sharply in the morning, but rebounded before closing.
RICHARD DREW / Associated PressPublished: Friday, August 17, 2007 at 3:44 a.m.
Last Modified: Friday, August 17, 2007 at 2:52 a.m.
As the stock market plummeted Thursday morning, one anxious investor couldn't take it any longer.
Against the advice of his Sebastopol broker, he decided to cut his losses and sell everything he had, said Bruce Dzieza, president of Willow Creek Financial Services.
Then the investor stood on the sidelines and watched as the stocks he'd sold soared again. By afternoon, the Dow Jones industrial average had made one of the biggest market recoveries in recent memory and regained more than 340 points.
It's an example of how a volatile stock market can unnerve even the hardiest investor, and how important it is to hold the course through good times and bad, local financial advisers said.
"You need to understand up front, whether it's stocks or bonds or real estate, these things go up and down," said Jan Schneider, a Santa Rosa financial planner with Protected Investors of America.
"The stock market has gone up for 4½ years in a row. A correction of 10 percent to 20 percent is normal," Schneider said.
Normal, but not easy. Investors have watched the Dow through a nerve-wracking four-week slide, from a record high of 14,000 on July 19 to close at 12,845 on Thursday.
At their lowest point Thursday, all three major stock market indices were down almost 3 percent, a cumulative drop of 10 percent from their July peak -- the technical definition of a market correction.
The sharp losses followed an alarming announcement from Countrywide Financial Corp. that it had tapped the entirety of its $11.5 billion credit line to deal with short-term funding issues.
But stocks garnered momentum in dramatic late-session trading. The S&P 500 eked out a small gain while the Dow and Nasdaq closed only modestly lower than the day before.
The sudden gains did nothing to ease investors' fears that the market was out of control.
"I'm holding clients' hands," said Harry Rubins of Rubins Financial Strategies in Santa Rosa. "I'm telling them to stay the course. The market goes through these adjustments."
The adjustments, however, are agonizing for many to watch.
Worried homeowners, who have watched the values of their properties decline, now are seeing their stock investments fall as well.
"It's part of the panic," Dzieza said. "They're seeing a million-dollar house now worth $900,000. The market hit 14,000 in July, now it's 12,800.
"If they went back to seven or eight years ago, they'd see they are way ahead of the game, but people don't think that way," Dzieza said.
Some investors who had planned to cash out some stocks for things like a child's college education or a long-planned trip are wondering if they can do that safely.
They can, if they've been invested for at least three or four years, Schneider said. The market "correction" has only taken stocks back to where they were three months ago, she said.
"If they've been in the market three or four or five years or longer, their profits are way up. If they need cash out of their portfolio, they should take out what they need and leave the rest for the long-term," Schneider said.
The sharp falls and sudden surges are giving pause to some investors who felt they had a good tolerance for risk, said Shari Ranney, a registered representative with Brecek and Young Advisors Inc. in Petaluma.
"If you are extremely nervous during times like this, maybe you should talk to your advisor about making some adjustments in your portfolio," Ranney said. "Maybe you're being too aggressive for your personal risk tolerance and you need to adjust your goals."
Retirees who rely on dividends should be fine, Schneider said.
"Portfolios may decline, but dividends stay the same and on average they go up," she said.
Investors who heeded the conservative advice of most financial planners should weather the downturn nicely, advisors said. Invest for the long-term, keep a cash reserve for sudden expenses so you don't have to sell stocks precipitously, and diversify your portfolio so your risk is spread over an array of businesses and market segments.
"It's a big shock when investors compare last month to this month," Dzieza said. "They need to look at the 12-month figures and they'll feel much more relaxed."
You can reach Staff Writer Carol Benfell at 521-5259 or carol.benfell@pressdemocrat.com.
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