Written by Tribune Staff and Wire Services
January 23, 2008
Wall Street struggled to steady itself Tuesday, with the Dow climbing back from a 465-point plunge to a loss of 128.11 after the Fed announced an unprecedented interest-rate cut. Many worried investors are expected to switch from equities into bonds or cash, but experts warn against such panic moves.
How do I avoid panicking?
"Short-term traders might have reason to panic. People who have a long-term perspective know markets go through cycles. But it's hard not to be afraid when the markets are so volatile." -Sterling Jenson, Wells Fargo Capital Management
"Markets go up and down. Keep in mind that emotion is a big part of financial markets. Sometimes you have to swallow and sit tight." -Jeff Thredgold, Zions Bancorp
"The best way is to have a strategy in place. The way the markets works, this is guaranteed to happen again. The essence is don't get sucked into acting on the emotion of the moment." -David Young, Paragon Wealth Management
How concerned should I be about the stocks-based portfolio in my 401(k)?
"There always should be a healthy level of acknowledgment of the risk when you are involved in stocks. But I think people in their 401(k)s should remember that over the long term stocks do provide the best return, as long as they continue adding money and dollar-cost averaging." -Jenson
"We do this every 10 years. We did it with the crash of 1987. We did it with the Asian financial crisis of 1997. Ten years from now we'll do it again. Investing in 401(k)s is by definition long-term investing. We may go lower for a while, but I think a year from now we'll talk about stocks that are higher." -Thredgold
"If you've got a short time frame, less than three years, you probably should be concerned because you need the money in the near future to live on. But if you have a longer time frame, then I don't think you should be concerned at all because over three to five years things work out." -Young
Can the country spend its way out of this downturn, as the economic stimulus packages proposed by President Bush and others would suggest?
"I think [the Fed's] rate cut will be far more stimulative than the spending package in restoring confidence and helping us to avert a recession." -Jenson
"We will get some kind of stimulus. Given what the Fed did today, it's probably going to be larger than $150 billion. Even at $150 billion, it's just 1 percent of Gross Domestick Product. It can provide some temporary boost in the economy [but] excesses that have built up over the last five years, you don't solve in three or four months." -Thredgold
What are the safest investment havens, short term and long term?
"If you want to be truly safe, you are going to be in short-term U.S. treasuries. Or you are going to be in bank CDs that are insured or in money market funds where you have a guarantted principal value. Long term, if you are into stocks or real estate, you are always subject to principal fluctuation, so there really are no long-term safe havens." -Jenson
Short term would be any FDIC-insured bank deposit. Long term requires a two-year Treasury note. Bank CDs. If you can find something in the 3 to 4.5 percent range over the next two or three years, that would look pretty good." -Thredgold
"The safest short terma re 90-day Treasury bills. As far as long term, I'm not sure there is such a thing." -Young
Is ther any way to know whether this contraction in the economy will be mild and short or deep and long?
"At this point it's anybody's guess. Most economists are putting a 50-50 percent probabilty that we are going into a recession that could last over the course of the next year. Our best guess is that we will not go into a recession at this point. We could have a quarter or two of muted economic growth, but then we see strengthening of the economy going into 2009." -Jenson
"There is not. It's a crap shoot right now." -Thredgold
"There is probably no way to know. My guess is that it's short. So far this recession is basically something that we've talked ourselves into at this point. The economic numbers don't justify a recession." -Young
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