Fed action, stock markets have some investors nervous
Gil LaLond just walked out of the office of his brokerage firm Ameritrade in the downtown St. Paul skyway, and he's not happy about what he saw on the computer inside.
When asked if he had a sense of how bad investments were, how much they were down, he replied, "Probably 25 to 30 percent, and it's mainly been since the latter part of the year."
LaLond is a retired ad salesman, and he said he checks the market regularly mostly as a hobby. While he's not happy about losing money on his investments, he does not plan to bail on the market.
"If you aren't out by now, you have to sit and ride it out. It's getting hit pretty bad, especially with all the Bear Stearns, all the shenanigans," LaLond said.
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Joe Schaedler of Minneapolis also plans to hold on. He has a 401k, a mutual fund that holds mostly stocks, and another that invests primarily in bonds.
"I'm just keeping them as they are right now, I designed all these savings to counteract each other, so I have a diversified portfolio, that's why I'm not moving anything out. I have countervaling investments," Schaedler said.
But Schaedler also has another motivation for sitting tight with his investments -- he doesn't want to join the wave of sellers out of a kind of market altruism.
"To move money out would compound the short term damage, but I have my investments for a long term view, so I'm looking to not cause any greater harm to the market, which I think will do me more good than harm," said Schaedler.
Mike McNamee of the Investment Company Institute, or ICI, the national trade association for mutual funds, said the late 80's showed that investors do not totally abandon a volatile market. After the market crash of '87, he says, it was a down year, but then there was a pick-up.
"Investors don't tend to panic and run to the exits. so they don't sell heavily, they slow down their buying instead," McNamee said.
That being said, McNamee said people are shifting out of stock mutual funds to more stable money market accounts.
According to the ICI's most recent study, stock funds saw a net outflow of about $45 billion in January, whereas money market funds had an inflow of $163 billion that same month.
"People are, to the degree they're shifting, they're shifting to cash and money market funds, cash equivalents, to have the greater security of an interest rate rather than a market return," McNamee said.
McNamee said the wrong action to take at this point would be not to invest at all and just squirrel away money under a mattress.
He points out that the positive side to the current market conditions is that stocks are a bargain compared to a year ago. And some people are buying now, because this may be an opportunity to live by the old saying, buy low, sell high.
At 26, Patrick Schneeman said his retirement from a St. Paul insurance company is a long ways off. So he's actually choosing to put more of his payroll money into his 401K.
"I'll just buy more stock now. Hopefully it will benefit me in the future," Schneeman said.
Schneeman said he's confident that in a year or so, the market will in fact be robust again.
"[I] see it as an opportunity for me, because I am young, so it might be a better time for me to invest more readily than when the market's up, because it may benefit me more," Schneeman said.
