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It's No Time For Investors To Panic

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The Tampa Tribune

Published: February 3, 2008

Every January, my husband and I update our finances, but this year's review nearly sent me over the edge.

Last week, as we were tabulating our assets, I looked at the latest statement from my 401(k) retirement plan. In the first 18 days of this year, the portfolio was down 10 percent, losing - at least on paper - more than $30,000.

Beginning to panic, I began to pull the statements on our other investments. More bad news. A fund we use to save for our children's college expenses was down about $8,000. My husband's federal government Thrift Savings Plan had also dropped 6.4 percent, or $20,000, in that period.

"Honey, we've got to do something," I said.

Stay The Course

That panicky feeling is one shared by many investors these days as markets around the world tumble. The Dow Jones industrial average, the Nasdaq and the S&P 500 stock index have all been dropping at alarming rates. Such huge losses can shake even the most experienced investor.

Probably more than many investors, I understand that markets go up and down. Sometimes the down is drastic. I know that. Still, I was panicking.

Many experts warn against panic in an unsteady market.

"Pulling your money out when everything is tanking is just not a good idea," says Don Blandin, president and chief executive of the Investor Protection Trust, a nonprofit investor education organization.

If you don't need your money for years to come, then stay the course, Blandin and many other experts advise. Even if you're close to retirement and you haven't rebalanced your portfolio in a while, you may still want to sit tight "until the dust settles," Blandin said.

Historically the U.S. stock market has had annual returns averaging a little more than 10 percent, assuming you reinvest dividends, we are reminded. So we are told not to let the daily gyrations of the markets scare us.

But how can it not scare you?

For many of us first-generation investors, this isn't about having enough money to buy a more expensive car or a second retirement home. For many, this money simply means being able to retire comfortably. It means being able to pay for a child's college education, sparing the family an onerous debt burden.

Thinking about the potential consequences of the market downturn upset me more by the minute. I ranted to my husband about not being able to retire when we want or not having enough money for the kids to go to college. We want to retire before age 65. And we have three kids to put through school.

Accept The Risks

Thankfully, in my house, there was a voice of reason: my husband's. In his usual calm and soothing way, he just kept working on our budget and yearly net-worth assessment, trying to ignore my agitated state.

Then, he finally looked up. "Baby, we don't need this money for a long time," he said. "We can ride this out."

He reminded me of our investment strategy, called dollar-cost averaging, which means we invest at specific times, regardless of market conditions. Regular amounts of money go every month into our retirement plans and children's college funds. This way, we buy more shares when stock prices are low and fewer shares when prices are high.

It is times like this that you have to keep in mind that investing means taking risks. In fact, I like the way Blandin views it. Think of investing as being on a merry-go-round, he says. There are going to be ups and downs. However, if you aim for steady growth by diversifying in stocks, bonds, cash and other types of assets, then it won't be a roller coaster ride.

"You don't have the deep highs and the deep lows," Blandin said. "But when you get off the merry-go-round you aren't sick."

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