Published: October 11, 2008 10:24 pm            

Reasons to Remain Calm

“You know you make me want to shout”

— Otis Day and the Knights



I feel like Kevin Bacon’s character in the movie “Animal House.” In the last scene of the movie, Bacon keeps yelling, “Remain calm.”

Instead, the crowd tramples him into the ground.

I was opposed to the Wall Street bailout plan, but it happened anyway.

I also have been telling people to spend less than they make, diversify their investments and to avoid risk.

If Wall Street had followed those rules, the crisis would not have happened.

Many bailout supporters were expecting an immediate cure. Even if the bailout works, it will take a long period of time.

Someone should have explained that to the American people. No one did. When the worldwide crisis continued, people were spooked.

It is time to remain calm.

Go back to my rules. If you are spending less than you make, diversifying your investments and avoiding risk, you are going to be OK.

Don’t get caught up in the panic.

I know you want to do something. We all do. We have this feeling of total helplessness, like watching a loved one die of cancer. The game is being played on a larger stage.

Remaining calm is the only true solution.

I watched the president and secretary of the treasury panic last week. That didn’t make me feel good, but I stayed calm anyway.

This is a time when we need to rise above our leadership. The quicker we all settle down, the quicker we can start working toward solutions.

The worst decisions are those made hastily and under stress. Financial decisions have to be separated from emotional reactions.

If you have money in a 401(k) plan, it’s probably gone down in the last month. It may go down in the next month. It may go up. If I knew the exact answer, I would be a multi-billionaire.

Some segments of the market do extremely well in times of panic. Others do worse. The key is to have your assets balance each other.

Some segments of the economy have been hammered, some not at all.

If you work in health care, government or a business not dependent on the financial markets, you may be in good shape. The odds of losing your job are possible, but remote.

No matter how bad the economy gets, we are still going to be hiring nurses, firefighters and dentists.

If you’re retired and get a defined-benefit pension check, your money probably is safe.

If your own your house outright, and not planning on selling it, you don’t have a problem. If you have a fixed mortgage and you’re making the payments on time, you shouldn’t have a problem either.

There is another economic extreme. People who are maxed out on their credit cards and behind on their sub-prime mortgages. The economic crisis may not hurt them as badly as maintaining the status quo.

Those people were already in trouble. There is now going to be huge political pressure to make banks and mortgage companies work out compromises and stop foreclosures.

It is politically difficult to throw someone out of those houses when they gave Wall Street $700 billion.

There are a number of sectors really hurting. I am affiliated with two industries, financial services and media, that are having a difficult time.

When it’s all over, those fields will have a few big players and a lot of tiny ones. The mid-level companies won’t survive.

The crisis is a good time to gauge if you’re company is going to be one of the survivors. If not, its time to look at alternatives.

Changing careers is a life-changing event. It’s not a decision that you should make during times of panic.

This is the fourth time in my professional life where I’ve seen an economic boom and bust.

I saw it in the stock market crash of 1987. Also, when technology stocks crashed in 1999. Worst was when “the world stopping turning” on Sept. 11, 2001. Along with the human loss, the event damaged the economy. Some industries, such as airlines, have never come back.

Each time, I watched people buy high and sell low. They would make irrational economic decisions and sell in the middle of a panic.

I would see people make bad, life-altering decisions because they didn’t think them through carefully.

Kevin Bacon may have gotten trampled, but he had the right idea. Right now is when people should stay calm.



Don McNay is the chairman of the board for McNay Settlement Group in Richmond, Ky. You can write to him at don@donmcnay.com or read his award-winning column at www.donmcnay.com.

        

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