Published: October 01, 2008 10:44 am            

Experts urge patience, having a strategy during financial crunch

Darnell Jackson watched Monday as members of Congress pointed fingers at each other and the value of his stocks pointed downward.

Jackson, of Jeffersonville, said his portfolio lost about 10 percent of its value with the record-setting 778-point drop for the Dow Jones Industrials index Monday.

The Dow rebounded, gaining 485 points Tuesday, but Jackson said he was still concerned Tuesday afternoon that an agreement to prop-up fragile financial institutions and save bad debt had not been reached in Congress. The

Senate was scheduled to vote on a revised bailout plan today.

“I’m disappointed that they [the House of Representatives] were not able to pass the bill because of the tumbling of the stock market,” he said.

Still, Jackson plans to wait out the rough economic times, which is what an investor should do, if they have a diversified portfolio, financial experts say.

“You should always monitor your 401(k),” said Uric Dufrene, the Sanders Chair of the School of Business at Indiana University Southeast in New Albany. “Review it on a regular basis to make sure asset allocation is consistent with your risk profile and how long you plan to work. If [you plan to work for] quite some time, some of this short term volatility should not be of a significance to you.”

Dufrene said a prudent short-term investor would already have taken steps to make sure “they don’t have all their eggs in one basket.” He said a diversified portfolio is key.

The rocky times are a reminder for people to stick with solid companies when investing long-term, said Kevin Boehnlein, financial adviser at Edward Jones’ Blackiston Mill Road office in Clarksville.

“Stick with quality investments and diversify,” he said. “So many of these [issues] have come about because of investments that were below-quality investments [by the lending institutions].”

Boehnlein noted that a quality, diverse portfolio can look different from person to person, based on their age and needs.

He added that the ups-and-downs of the market early this week are the rule when looking through history, rather than an exception.

“These dips in the market — though something different causes them over time — they happen with regularity,” Boehnlein said. “Clients need to be investing their dollars thinking that once every 31/2 years, historically, the market is going to go down 20 percent or more.”

Along with investors worrying about money tied up in the markets, people who simply put money in the bank also are concerned, as several major banks have failed in recent weeks, only to be bought by more stable, bargain-hunting financial institutions.

Presidential hopefuls John McCain and Barack Obama have urged raising the Federal Deposit Insurance Corp.’s protection threshold on deposits from $100,000 to $250,000 to protect consumers. That talk has brought questions from customers at area banks, said James Rickard, president and CEO of Community Bank Shares of Indiana Inc., which owns Your Community Bank and Scott County State Bank.

“Everybody is kind of glued to their TVs right now trying to make heads or tails out of what’s going on with Wall Street,” Rickard said. “We’ve had to educate our staff on how the FDIC insurance works.”

Rickard said community banks in the market are sound because they haven’t taken the risks — such as subprime lending — that some large national banks did.

“It’s business as usual for us,” he said.

Larry Myers, president and CEO of First Savings Bank, said business at his organization is actually improving.

“We never got away from the fundamentals of lending,” he said.

There’s been talk that the average person will be decimated if the bailout doesn’t happen, he noted.

“That’s not true,” he said.

Still, IUS’ Dufrene said bailout or no bailout, the economy should be sluggish for a while, with some economists pointing well into 2009 before a rebound comes.

“We’ll probably see consumers hold back because you’ll see consumers probably saving more cash,” he said. “We’re going to see an overall decline in consumer spending.”

— Staff Writers Tara Hettinger, David A. Mann, Matt Thacker and Managing Editor Shea Van Hoy contributed to this report.

        

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