Effects of market turmoil may depend on investors age

When Dawn Goates Crus watched the financial markets go "to hell in a hand basket" following the recent downgrade of U.S. government debt, she did what any savvy investor should do: She called her financial adviser and bought some shares of stock "because I thought it was a good time to buy something." The 63-year-old retired writer and editor said she wasn t too surprised by what happened because she had seen the markets and the economy take a dramatic nosedive during the 1980s savings and loan debacle. Back then, she made a choice that she would later regret, but it taught her a valuable lesson. "I did what so many people do … called my broker and said, "Sell, sell, sell!" she explained. The market dropped a few hundred points one day, but "popped right back" the next day, she recalled. "I paid all these commissions to dump these perfectly good stocks. I felt like a fool." - Dawn Goates Crus "I paid all these commissions to dump these perfectly good stocks," she said. "I felt like a fool." Goates Crus said having lived through that experience has made her more patient and she now has "faith in how the stock market works." While her belief in the market has been developed over years of observation and study, her faith in the U.S. government has waned. Following the historic downgrade by rating agency Standard & Poors, the U.S. now shares a less than optimal AA+ credit rating with countries like Belgium and New Zealand. In contrast, some remaining AAA rated countries include the United Kingdom, France and the Netherlands. Prior to the downgrade, U.S. Treasury notes had been considered "risk free" assets. Now the role of U.S. government debt as inherently secure has been called into question. Analysts say that volatility in equity markets should be expected, with patience rather than panic generally rewarded. Like Goates Crus experience two decades ago, investors who react emotionally and sell at low points, then buy at high points find themselves punished financially. According to John Watkins, economics professor at Westminster College, the future may bring new political and economic challenges as well as opportunities. Those people who effectively execute a well-conceived financial plan would find greater reward over the long run, he said. "People should avoid a knee-jerk reaction. If they ve got another 10, 15 to 20 years left in the market (to retirement), they may as well stay in." -John Watkins "People should avoid a knee-jerk reaction," he said. "If they ve got another 10, 15 to 20 years left in the market (to retirement), they may as well stay in." Watkins noted that the current economic situation has pushed interest rates on government bonds down to extremely low levels, which hurts their investment value. "For retirees, it suggests that return (or income) they re earning off their savings is incredibly low," he said. "So it would be a real disadvantage to retirees to have such low interest rates." He mentioned that including precious metals, such as gold, within an investment portfolio "might be prudent" for those looking to mitigate some of the uncertainty of the current economic climate. Watkins said that while this recent turmoil has created some of the most challenging economic times in years, the situation is not unprecedented. In the late 19th century, the country was nearly forced off the gold standard and later when both world wars had "massive, massive impacts" on the nation s economy, he said. Much of the recent problems have been blamed on the size of the national debt, but Watkins said today s debt is not even the worst the country has ever seen. "The level of debt was higher at the end of World War II than it is now," he noted. It was about 125 percent of gross domestic product compared to approximately 90 percent of GDP today, he said. "(The situation) is not quite as alarmist as some of our congressmen have been suggesting," Watkins said. "The downgrade is more a result of the paralysis in Washington among the two dominant political parties who seem to be unable to work together to develop a workable budget and debt management policy." "The downgrade is more a result of the paralysis in Washington among the two dominant political parties who seem to be unable to work together to develop a workable budget and debt management policy." -Watkins Meanwhile, amid all the political wrangling and economic upheaval, Darin Brush, of Salt Lake City, has taken a decidedly pragmatic approach toward the situation. The 44-year-old married father of two said that while he is conscious of his eventual retirement, this latest market tumult has not had much of an effect on his long- term plans. "I ve always been one of those people who takes a consistent approach to investing," he said. "While it s discouraging to see the market drop like it has, (over the) long-term I have confidence in the economy and in the markets that I still have enough of a runway to retirement to recoup and rebuild a substantial retirement nest egg in time." He said that if was he a bit older and closer to retirement age, he might be more concerned. For now, he will continue pursuing his current long-range investment strategy. Not all that surprisingly, many Utahns have been making calls to their brokers to inquire about the status of their accounts in the wake of the economic meltdown. According to Jeff Solomon, investment adviser with Edward Jones, the vast majority of the calls he received were from clients over age 60 — who are "close to needing (their retirement) money or already using it." He said his advice to clients is to avoid panicking and selling shares at a loss in the "down market." "It s a paper loss right now, not a realized loss," he explained. "Usually, things like this are short lived." Solomon said volatile market "corrections" like the one that occurred earlier in the week are not all that uncommon. In fact, they happen on a nearly annual basis. He described a correction as "when the market is down 10 percent or more from its highest point." Since 1900, the market has experienced 122 such declines. He said investing for the future is more about what your timeframe, plans and goals are, along with your risk tolerance. "If you invest in terms of those (criteria) in quality investments … that are appropriate, then you ll be in good shape," Solomon said.

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