The Star-Ledger Archive
COPYRIGHT © The Star-Ledger 2008
Date:
2008/10/07 Tuesday Page: 017 Section: BUSINESS Edition: FINAL Size: 967 words
Series: THE BIG MELTDOWN
Sliding backward
When
it comes to investing, it's not a one-size-fits-all-age-groups approach
By KARIN
PRICE MUELLER
Star-Ledger Staff
Dear Biz Brain:
I keep
hearing that despite the market slide, we should keep with our original strategies. But
look at the market! What should we do?
—
Miserable on Monday
Dear Miserable:
It's frustrating to hear the same old advice: hold tight, don't sell especially when you're watching your net worth drop. If you have time to ride out the
market, yes, you should stay put. But that advice isn't perfect for absolutely everyone all the time.
NEW INVESTORS/YOUNG SAVERS
Yes, keep saving and don't sell, not even after yesterday's mess.
The younger generation of investors is the one demographic that should come out of this market debacle viewing
it as a positive, says Michael Pirrello, a certified financial planner with Summit Asset Management in Florham Park.
"As
long as they have job security, since they have time on their side, the 22 to 35 crowd should continue their 401(k) contributions
and even invest outside of those plans if they have the cash flow to do so," he says.
This nasty market
will not last forever, Pirrello says, and history will show today's market levels will look like great entry points for
investment.
NERVOUS INVESTORS
Nervous investors should reevaluate
the risk level of their portfolios, says Greg Plechner, a CFP with Greenbaum and Orecchio in Old Tappan. He says the time
horizon is the key factor.
"If the answer is five years or less, depending upon all of their other assets
and cash flows, they should have much less than 50 percent of their portfolio in the equity markets," he says.
If
you're not sleeping at night, remember the Fed raised levels of FDIC insurance to $250,000 per depositor to alleviate
insolvency fears. You can use the insurance hike to add some comfort to your portfolio.
Pirrello says
for investors who just can't take the ugliness, you can pull the plug and reinvest in CDs, but you'll be giving up
any upside in a market rebound.
THE
SOON-TO-BE RETIRED
Investors
who are within a few years of retirement could be most adversely hit, Pirrello says.
If pending retirees are too
heavily weighted in equities, they could be down more than 30 percent from their highest point, and it could take three to
five years or more to gain back those losses. Coupled with a major job market correction and real estate meltdown, he says,
it's easy to understand why the pre-retirees can't sleep at night.
"This group of investors
should review their equity allocation; depending upon the extent of their equity exposure, they should consider taking 20
to 30 percent off the table," he says.
He also says large global and internationally-exposed companies may have
a more difficult time rebounding from a potential massive global slowdown, so investors should consider reallocating to smaller-cap
companies that typically lead the way after a recession.
Plechner prefers the strategy of slowly whittling down your equity exposure
in small steps, say, 1 percent or 2 percent at a time, rather than in one fell swoop.
"The financial future
is no more uncertain now than it was a year ago," he says. "In fact, there is less uncertainly today because we
know of the material factors causing the current crisis and steps are in motion to correct them."
Despite
the bad names annuities have developed, there are times when they should be considered. This is one of those times, says Jack
Oujo, a Wall Township-based certified financial planner and certified public accountant.
"Products
from the likes of AXA and Metlife are offering great protection to people, especially seniors in this environment," he
says.
ALREADY RETIRED PEOPLE
Unfortunately, most retired folks need
to generate current income, so taking their money out of those income producing investments right now is not an option. However,
Pirrello says retirees should take precautions if their fixed income investments are not high quality.
"Quality
municipal bonds and CDs are better investments now given current market conditions," he says. "Stay away from preferred
stocks and leveraged exchange-traded funds that may be offering high yields now because that high yield comes with a significant
risk."
If you have a conservative stock portfolio, these should kick off valuable dividends, says Jerry
Lynch, a certified financial planner with JFL Consulting in Fairfield.
"Companies that have excess cash
should do very well in coming through this current market situation," he says.
IF YOU HAVE A COLLEGE STUDENT
If you need to tap college savings for current or near-future tuition bills, you should
already have your 529 and other college savings in more conservative investments.
"If you need the money
in less than two years, it should not be in the market, and I would say that if the Dow were at 15,000," Oujo says.
If
you haven't gone more conservative yet, parents with college obligations should look to now move those funds to more conservative
allocations to protect what they have accumulated, Pirrello says.
NEW COLLEGE SAVERS
While the stock market rides this roller coaster, people with a long time horizon shouldn't make
the mistake of steering clear.
Young parents should not be conservative with their college savings now,
Lynch says.
"This is a great buying opportunity for long-term investing," he says. "Never stop
a long-term plan due to a short-term situation."
