PLUNGING MARKET
It's a bear out there: The 401(k) blues
Since Oct. 9, the S&P index has lost 20 percent of its value. That sudden drop-off will be reflected in your investment statements that arrive this week.
The dips and turns of the stock market has led some investors toward vertigo as the market turns bear.
AP File Photo / Kathy WillensPublished: Friday, July 11, 2008 at 9:37 a.m.
Last Modified: Friday, July 11, 2008 at 9:49 a.m.
You've heard of sticker shock. How about "statement shock?"
That's what ordinary investors are feeling this week as they open their quarterly IRA and 401(k) statements. As the stock market slides into bear territory, they're watching the value of their nest eggs shrink.
"It's a shock when you see it," said Maggie Buck, who was visiting Merrill Lynch's office in Santa Rosa on Thursday.
Still, she's not worried about the future, said Buck, a minister who lives in Santa Rosa.
"I've been doing this a long time," she said. "You don't panic."
That's good advice, say Sonoma County financial planners who've been fielding calls this week from nervous investors.
"It doesn't feel good and I understand that," said Barbara Chown, an investment adviser at Foothill Securities in Santa Rosa. "But it doesn't do any good to spend a lot of energy on things you can't control."
In fact, she said, there's a silver lining in the economic bad news -- investors can now buy stocks at discount prices.
"If you're more than five years away from tapping into this money, it's the best thing that can happen to you," Chown said.
As of Thursday, all three major stock indexes were down more than 20 percent from last year's peak, a common definition of a bear market.
With soaring oil and commodity prices, growing unemployment and continued fallout from the subprime mortgage crisis, experts don't expect a turnaround anytime soon.
Since 1937, the average bear market for stocks on the S&P 500 lasted 19 months and saw a 34 percent decline in stock value.
"Things could get worse before they get better," said Charles Biderman of TrimTabs Investment Research in Santa Rosa, a consulting firm that analyzes cash flow in and out of stock market funds.
Today's economic climate is like the recession of the early 1970s, when oil prices quadrupled and unemployment spiked, Biderman said. The stock market slump should last for another year or two, unless oil prices drop back below $100 a barrel, he said.
In the meantime, investors should stay the course, Biderman said.
"You want to buy during times of weakness," he said. "Most people stop buying when the market is down."
Investors should keep their eye on long-term goals, said Harry Rubins of Rubins Financial Strategies, a Santa Rosa consulting firm.
"It's normal that people are concerned," he said. "But you're investing for the long run. You accept volatility in the market for the rewards of long-term gain."
Investors with diversified portfolios aren't feeling the full impact of the stock market's slide, said Bruce Dzieza, a financial planner with Willow Creek Financial Services in Sebastopol.
"They're only down a couple of percent," he said.
But the drumbeat of bad news from Wall Street is having an impact on consumer confidence, especially when coupled with slumping home values and soaring gas prices, Dzieza said.
"People are depressed," he said.
Stock prices may not have hit bottom yet, "but you'll see the market turn around," Dzieza said.
You can reach Staff Writer Steve Hart at 521-5205 or steve.hart@pressdemocrat.com.
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