17 January 2008
By Tami Luhby
The stomach-turning drops in the stock market and near-constant talk of recession may prompt some people to put their money under the mattress. Staff Writer Tami Luhby talks to Little Neck certified financial planner Ray Mignone, chairman of the Long Island Financial Planning Association, about why that's not such a good idea.
What should people do in a plunging market? "If someone has a good, well-balanced, long-term investment strategy, turn off CNBC and don't open your statements. Things will work out fine. The media will derail investors' long-term strategy and get them in a panic. That said, this could be a pretty rough year."
But there probably are some people panicking. "People shouldn't panic. We're going into a correction. We're going into a bear market. We haven't been in a bear market since 2001-02 or in a recession since 1990-91. It's a normal market cycle, but nobody likes it while it's happening. When you look at a long-term stock chart, you see lots of dips over time. But when you are in one, your stomach churns."
What if you want to make some changes? "First, review your overall asset allocation mix and make sure you are well balanced according to your tolerance for risk and your goals. For people in their 20s and 30s, they should not be afraid. They should be buying. If they are that young and have a 50-year investment horizon, they will be without a doubt ahead of the game in 10- to 15-years, probably even in 5 years. People in their 40s and 50s should probably stand pat with their current allocation. But if they want to be more conservative, they shouldn't go lower than 40 percent in stocks, realizing it will then take them longer to meet their goals. Those in their 60s and in retirement should definitely be more defensive. Look to increase bonds, especially short-term bonds, and mutual funds that hedge the market risk. But even people in retirement should have a minimum of 40 percent in stocks."
Will a Washington stimulus package help the market? "Whatever the Fed does and whatever the politicians do will be a help. But it's like when you get a cold, you can take all the cold medicine and go to the doctor, but it's going to take time to get over it. One day, you'll wake up, and you'll feel better. They will try to help, but it's not going to help much. One day, the bear market and recession will be over."
If the U.S. goes into a recession, should I make any changes to my investment strategy? "If we go into a recession, large U.S. companies and good-quality corporate and municipal bonds will probably do better than any other asset class. Just make sure that you are well balanced and have a good mix of domestic and international stocks and bonds, with a heavier weighting towards large U.S. stocks."