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INVESTING

Willing to wait as they worry

Some loss-laden shareholders won't open their account statements, hoping for a market turnaround.

October 13, 2008|Jerry Hirsch and Tiffany Hsu | Times Staff Writers

It's the watching and waiting that kills you.

Whether it was someone's life savings, a stash of mad money or a retirement account at stake, there was no relief last week. Investors of all kinds will watch with trepidation as the Wall Street clock starts fresh this morning and the stock market reacts to the weekend's events.

Police Lt. Cory Palka of Thousand Oaks and his wife can't bear to look at their portfolio to see how much they've lost.

"Looking would just cause grief and unnecessary despair," said Palka, 45. "The hardest thing is the news every day. It doesn't change the way I live my daily life, but at the same time there's some anguish and frustration."

The officer and his wife, who works in mortgage refinance, have about half a million dollars in the market, including retirement savings, individual stocks, mutual funds and money market accounts.

With more than 10 years before he's set to retire, Palka said he's "not foolish enough" to sell off chunks of the portfolio. "The market is too broken at this point, where it's all or nothing."

Much of the wealth on Main Street is tied up in stocks, typically through mutual funds and often in retirement accounts. Almost 51 million American households owned stock and money market mutual funds in 2007, according to the Investment Company Institute. That amounts to 44% of U.S. households and translates into nearly 90 million individual shareholders.

Most of them have household incomes between $25,000 and $100,000, and about two-thirds are headed by people between the ages of 35 and 64, according to the trade group.

These are the people whose financial security has been hit by the 43% decline in the S&P 500 index, a broad measure of the stock market, since it made its high in October 2007.

"It's frustrating for retirees. If you sell out your entire portfolio at the bottom of the market, then you've really lost. . . . We don't want to sell into a falling knife," said Kay Jaacks, 65, of Orange County's Cowan Heights.

The diversified portfolio of bonds, mutual funds and real estate that Jaacks shares with her husband, Gary, has bled six figures and is down 30% since the beginning of the year, she said.

"I don't see any way out -- the markets will be so volatile and it'll take so long for credit to start moving again that I just feel we're sort of stuck," said Jaacks, who has moved some of her investments to cash.

No matter how things look, Meir Statman, a professor and expert in behavioral finance at Santa Clara University, said now is the time to consult a financial advisor.

"People are emotional during these times. Fear comes in and translates into an aversion to risk," Statman said. And though this causes some people to hold steady in the face of huge but unrealized market losses, others may lose their cool.

"What some people now feel is a combination of anger and disgust, so they do with their stocks what you would do with foul food -- spit it out, expel it, get it over with," Statman said. "There's always a point where we say enough is enough."

Rody Stephenson is a La Canada Flintridge retiree who, despite the market dive, isn't there. He still has half of his retirement fund in stocks. He remembers when the technology stock bubble burst earlier this decade. Stephenson cashed out then, only to discover he sold at the bottom, and he doesn't want to repeat that mistake.

But with a seemingly daily plunge in the Dow index -- its mildest recently was the 128-point, or 1.5%, drop on Friday -- Stephenson said it was impossible to discern whether the market had more room to fall or had hit bottom.

"I am afraid to look at my accounts. I assume I am down 40% to 50% in equities right now," said Stephenson, 72. "I hope it recovers. It is very discouraging that the market is not responding to what the government has done."

Bill Henneberg, a retired avionics technician from El Segundo, has whittled down his stocks gradually to less than 50% of his holdings. He also plans to wait out the crash and is thinking about buying stocks over the next six months.

"I think there will be some real good opportunities," Henneberg said.

He's more upset about the real estate crash than the steep plunge in stocks.

"I wanted to sell my home and move to Arizona, but it looks like it will be years before the real estate market comes back and I can do that," he said.

Brian Kadison, a Beverly Hills business consultant, sold about two-thirds of his U.S. stock holdings Thursday. He had been gradually converting his stocks to cash over the last six months and decided it was prudent to make the move with most of what he had left after seeing the string of declines in the market.

"To me right now, cash is king," Kadison said.

He realizes investor confidence "is extremely low" but believes that at some point the market will turn.

"There has to be a fundamental value at which people will stop panicking," Kadison said.

"I am not ready to start buying, but I think I will be doing that aggressively sometime in the next 90 days."

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jerry.hirsch@latimes.com

tiffany.hsu@latimes.com

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