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10:50

Kim Quillen, T-P - Good morning and welcome to today's online chat with John Gin. Because of the unprecedented conditions we've been experiencing in the financial markets -- and the Dow's decline over the last week, I asked John to open today's chat with a preliminary statement, which appears below.

Feel free to go ahead and begin posting questions now. John will begin answering them at about 12 noon.

11:01

John Gin -

Since the Dow Jones Industrial Average reached a record high of 14,164.53 on October 9, 2007, no one could have imagined the complete reversal in fortune in the world economy. The wholesale evaporation of wealth is unprecedented. Everyone's portfolios are down significantly.

Whenever there is turmoil in the markets, emotions run high. And many investors want to know what to do now.

Here are some practical steps to guide you through this crisis.

*If you have more than 10 years to go until retirement, you've reached a point in life where you are earning a good income, getting a handle on expenses and investing for your future. This may be your first experience with a very volatile market. Since your portfolio is probably positioned more aggressively for long-term goals like retirement, you're probably finding the recent market turmoil particularly difficult. Your emotions might be telling you to get out, but the money you have already invested should probably stay invested. In addition, if you are making regular investments through your workplace savings plan you should continue to do so. And if you're not, you should start. The reason is simple -- there is a risk to being "out of the market." Missing even just a few of the best days in the market can have a significant impact on your overall return.

* If you have fewer than 10 years to go until retirement, you might be no stranger to market volatility, but recent events may have you concerned about whether your plans are still on track. In uncertain times it's especially important to take a steady approach toward examining what you can do to minimize risk and finding new opportunities. As you approach retirement, you want to control volatility in your portfolio and, at the same time, continue to grow your savings. Consider rebalancing your portfolio to make sure you investment mix is consistent with your risk tolerance level. You may want to make more conservative investments to limit your exposure to volatile markets, while keeping investments with sufficient growth potential.

* If you have already retired, you had probably not planned on this volatile market. But focusing on what you can control is the best way to find calm in the market's storm. Step back, assess where you are, and determine if you need to make any adjustments to help protect your retirement security. It's a good idea to create a buffer against market risk by allocating a percentage of your portfolio to cash or short-term assets that are not affected by market volatility. Typically, you should have enough short-term assets to meet your income needs for three to four years. The rest can be invested in a mix of stocks and bonds for longer-term growth.

For all investors, it's important to avoid emotional investing. A consistent disciplined investment strategy allows you to make "non-emotional" decisions about your portfolio. This is not always easy to do when markets are fluctuating the way they have been in recent months. It was 10 years ago when the talk at parties was how your friend scored big on an internet stock. Now that talk has been replaced by: "I went to cash in October of 2007!"

How times have changed.

11:59

[Comment From Guest]
My parents are in their 60s, still working, and unfortunately, not where they need to be in their retirement savings. Like everyone else, they've gotten killed in the stock market in recent months. The experience spooked them, and my mother told me recently that they moved everything into bonds and lower-risk investments to make sure they don't lose more money. My question is, is that a wise move or does that prevent them from ever making up what they lost when the market finally rebounds? Should they have stayed in stocks so they would have a chance to recuperate their precious savings when things pick up?

12:21

John Gin -

Dear Guest, I feel for everyone that has to endure these tough economic times, especially, those that are approaching retirement and those who are retired. Please refer to my commentary about where to begin and what your parents should consider doing.

Your parents are in need of some basic financial planning. Knowing what their assets and liabilities are will be a great help. Let's see how your parent's portfolio is now invested. If they no longer are in stocks, the risk to your parents is the effects of inflation down the road. Unless your parents can meet their retirement income goal from Social Security and pensions, then your parents will need to do a combination of : reducing their lifestyle, work longer, and save more money.

By not having some stocks in their portfolio now, they will be tempted to make up for the losses later by getting back in when "things settle down". This means they will buy stocks back at a higher level than when they exited. If your parents have enough cash and more stable investments to provide 3 to 5 years worth of cashflow during retirement, then a portion of the money can go back into stocks.
Remember, try to match the type of investments to the time that it is needed.

Since your parents are still working, they have some time to determine what is their best course of action.

12:21

[Comment From Joseph David]
Gin, thanks for taking time out for this. I just turned 40 with a wife and 3 kids under 10. I am riding out the downturn in my 401k hoping for long term recovery. My question is, with so many stocks at all time lows, is it time to consider some direct stock purchases with a portion of the monies I already set aside to capitalize on these days. I remember grandparents who held stocks in Exxon for decades and obviously made huge returns in recent years. Their kids benefited greatly.

12:34

John Gin - Joseph, you are at a great age to capitalize on the current economic turmoil. There are plenty of cheap stocks out there. If you want proof, just look at the Stocks of Local Interest in the Money section of The Times-Picayune. You can invest in individual stocks, but I would dollar cost average in. This may not be the most cost effective way to invest. When there is still so much uncertainty, I would be dollar cost averaging into more broadly diversified stock mutual funds, index funds, or exchanged traded funds (ETFs). This way, if one or two of your stocks doesn't work out, the more diversified approach will not sink as much. Another thing to remember is that there are some many sectors of the market that are down, which stocks will you pick from... health care, techology, energy, financials, etc.?

12:34

[Comment From Ann Roth]
I have been retired for 3 years. I have most of my 401K in money markets now after losing too much in 2008. Would an annuity be wise for part of my investments and then leave a percent in the market to beat inflation? What percent and what specific mutual fund would you suggest for growth when the market recovers?

12:46

John Gin -

Ann, congratulations on your retirement. The ones who are retired are the most affected by the current recession because their options are are more limited due to lack of time so that their investments can recover. One way that you may want to look at your retirement income needs is to see what your expenses are fixed vs those expenses that are discretionary. If your current income sources from Social Security and pension are not enough to cover the fixed expenses that are the necessites, you can work backwards to see how much from your portfolio you need to invest into an annuity to provide income to cover the shortage. With the rest of your portfolio, keep enough cash and stable assets to cover 3 to 5 years of discretionary expenses and the rest of the portfolio back into stocks.

This way you are positioning the stocks as money that you will not need to touch for 5 years or longer so the recovery can take place.

12:47

[Comment From Jenny]
Any idea how much lower the Dow will go?

1:03

John Gin - Jenny, I do not know how much lower the Dow will go. I wish I knew. My observation about how people go about their business is a dependancy on trying to predict the future. I believe a better approach is to prepare for the certainty of uncertainty. This process will require more thought and effort, but you are in control.

The world is going through a version of a financial Katrina. Most of us in the area have learned to be prepared to pack up and ecavuate when the hurricane season is upon us and not rely on whether we will get hit by a hurricane or not. I hope that the lesson one can learn from this financial crisis is to do a better job of preparing for the uncertainy of the future.

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