22 January 2008
By Keith Herbert
The e-mail appeared in financial planner Charles G. Hughes' in box at 12:33 p.m. yesterday.
"Should I be moving things?" was in the subject line.
"It seems as though things are tanking," wrote one of Hughes' West Coast clients. "Should I be thinking about moving things out?"
Money managers like Hughes said they witnessed a spike in calls and inquiries from clients after the Dow Jones industrial average plummeted 465 points within 20 minutes of opening yesterday morning.
The market never entered positive territory, and ended with a milder drop of 128.11, or 1.06 percent, to 11,971.19.
Before the markets opened, the Federal Reserve Bank's board of governors slashed benchmark interest rates by 0.75 percentage point to 3.50 percent and the discount rate, the interest the Fed charges banks directly, to 4 percent to help a struggling economy. The decision came a week ahead of the Fed board's regularly scheduled meeting.
One client, Hughes said, called him yesterday and declared she wanted to move her investments out of stocks completely.
"People are very nervous," said Hughes, whose office is in Bay Shore. "Their knees are getting wobbly."
Volatility in the markets, coupled with talk of an economic recession, have sparked investors to lean on their advisers for help finding the right investment mix, some advisers said yesterday.
Despite recommending that clients be aggressive in the down market, one 70-year-old investor instead went the opposite direction, seeking to dump her stock holdings, Hughes said.
"One client said, 'I hear you, but I'm really nervous,'" Hughes said during an interview at his office yesterday. "I have to honor how my client feels.
"It's the client's money. She's got to sleep at night."
Investors woke up to news accounts about the market dive, which is why, Hughes said, he figured his Seattle-based client fired off the e-mail that he received about lunchtime.
It's counterintuitive, investment advisers said, but now's the time to be in the market, not abandon it.
"Right before you called me, I was putting money in the market for clients," said Ray Mignone, a financial adviser in Queens. "I'm getting aggressive. I'm starting to put more money to work in stocks."
Mignone said he received his share of jittery-client calls, too.
"If they have the right balance, they're willing to stick in there," Mignone said. "We're getting near the bottom."
Hughes said he'd recommend to the client who e-mailed him, a professional woman in her late 30s, to stay the course, and look for good stocks at a bargain price.
In fact, Hughes said he'd be recommending that the investor increase her stock holdings from 60 percent to 70 percent of her investment portfolio.
"It's really days like today that advisers earn their money," Hughes said.
First, advisers have to calm investors surrounded by bad economic news, and second, they have to remind the investor of the long-term strategy the adviser and client drew up together.
"Even if I thought this was the beginning of the end, I wouldn't sell today," Hughes said. "We'll have some better days to rebalance than today."
Michael Kresh, a financial adviser and president of the Long Island chapter of the Financial Planners Association, said his average client has been with his company for 14 to 15 years.
So they've seen volatility before, he said.
"They know what it looks like, the irrational exuberance of the 1990s and unreasonable panic of the early 2000s," Kresh said. "They have to be a little bit nervous."
Most calls came last week, Kresh said. But his clients weren't jittery about the market going down because Kresh's firm increased its cash position by reducing its stock holdings between 15 percent and 20 percent last year.
"Is it time to invest the cash?" Kresh said his clients asked. "I said, no, it's too early."