They Took Advice but Most Kept Own Counsel

Anthony Anico had cleared $10,000 in student loan and credit card debt and was makingplans to move out of his parents’ house when he turned to Money Make-Over for advice on investing his savings, which had totaled an impressive $18,000.

Six months later, Anico, 26, is on his own in an apartment in Thousand Oaks, has contributed $6,000 more to his growing retirement portfolio and has learned one of the most important lessons of his short investing career: There is nothing like a stock market plunge to show you your risk tolerance.

When Anico, who earns $51,000 a year as a laboratory scientist, met with fee-only financial planner Howard Rothwell of Overland Park, Kan., last spring, he had already assembled a portfolio of domestic, foreign and world stock funds and a few fixed-income investments. These were spread among his 401(k), two IRAs and a regular investment account.

Rothwell said that since large caps were already well represented in Anico’s overall portfolio, Anico could get more aggressive with his 401(k)--he could raise its 35% small-cap allocation to 50% by switching the 15% going to fixed-income choices. Rothwell reasoned that Anico was young and would be unlikely to need his 401(k) money for many years and thus would be able to ride out any market downturns.

Anico went along with that. Until the stock market took a turn for the worse shortly afterward.

“I got scared,” Anico said, when he saw the $2,000 hit the small-cap part of his 401(k) had taken. The 15% went back into fixed income.

But now he’s second-guessing himself.

Although his portfolio’s again large-cap-heavy mix makes him comfortable for the moment, he says, he questions whether it’s a wise choice for the long run.

If it’s any consolation, Anico’s got company.

Plenty of investors make panic-induced moves in a downturn only to regret it later. Indeed, financial planners generally advise the jittery to hold tight during volatile periods--as long as their investments are in a well-diversified portfolio to begin with.

“Maybe I should have just ridden the storm out and left the money where it was,” he said. “Maybe when you have more experience, you feel more confident to do that. But I was too chicken.”

But Anico can pat himself on the back for the all the things he’s done right. He put $1,000 a month into his retirement accounts. He continued to avoid carrying credit card balances and kept his spending under control. He even set up a Christmas account this year so he wouldn’t be tempted to lean on the plastic to buy gifts.

All in all, Anico feels he’s made significant strides this year, even as he wrestles with the allocations in his portfolio.

“Nobody can predict those things,” he said of the stock market slide, “but that’s all right. I still have 25 years left before I will need the money.”