Investors Agonize Over Riding Out the Slide

What to do now?

As stocks continue to plummet, many individual investors say they’re paralyzed--unwilling to stomach stepping out of the stock market for fear it will turn soon, but also unwilling to put new money to work.

“I can’t buy because I feel that there is nothing I can trust at the moment,” said Charlene Hyde, a Pacific Palisades speech pathologist. “But I can’t sell because I’ve been told over and over that when things go down is when it’s time to buy. I just pray for better times and hope I can maintain my sanity.”

It may be that paralysis--even if panic-induced--is the best thing for many investors now, financial advisors say.

“For the moment, being paralyzed is probably a good thing,” said Tim Kochis, planner with Kochis Fitz in San Francisco. “At this point, it’s way too late to get out as a defensive move. And it’s wise to be exposed to future opportunities by having some money in the market.”

William Howell, portfolio manager at Bedel Financial Consulting in Indianapolis, agreed. “This would be the absolute wrong time to be making any major moves out of the market.”

True, financial advisors have used the same line throughout the long bear market, now 28 months old. But they believe their job is to keep their clients focused on the long term.

Eventually, this bear market will end. And even if it isn’t immediately followed by a rousing bull market, investors who have a time horizon that stretches beyond 10 years can expect to make money in stocks again, if history is a guide, advisors say.

Investors who have built a diversified portfolio should be comfortable sticking with their program, said Brian Pon, financial advisor at Financial Connections in Berkeley.

The investors who face a crisis now are those who only recently have come to realize that their investments don’t match their risk tolerance, planners say.

Despite their general advice against selling, financial advisors say investors shouldn’t have money in stocks if those funds will be needed in the next few years. The market may well be nearing a bottom, but if it isn’t, those with short time horizons may find themselves financially crippled if they stay put.

“One lesson investors should take away from this is that there’s never a bad time to start having a diversified portfolio,” Pon said.

The fact that two clients capitulated to fear last week--cashing out of stocks completely once they received their June investment statements--struck San Diego financial planner Ginita Wall as a sign that the market is nearing bottom, she said.

Long-held market wisdom is that bear markets end only after the weakest links--small investors without the fortitude to ride through market storms--are shaken out. That may be happening in earnest now.

“We are now starting to see people say that they can’t take it anymore, that they need to get out, even though they know it’s the wrong thing to do,” said Edward O’Hara, owner of Capital Asset Management Services in Silver Spring, Md. “We have to be in some waters right now where there are some tremendous buying opportunities, but we are just afraid to do it.”

Still, advisors say the bulk of their investors aren’t abandoning the market.

But for many people, the pain is becoming intense.

Liesel Friedrich, a Santa Monica homemaker who has confidently held on to her stocks through the long rout since 2000, said she finally has lost her calm.

“I am like a deer with headlights blaring in my face,” she said. “There are so many negative things. But I have grown up with the idea of never selling. I don’t know what to do.”

“Every day, I hope that the market has hit bottom, and it seems to keep going down,” said Marilyn Barrett, a Los Angeles tax attorney. “We are all just paralyzed, not knowing what to do and just hoping that things will get better on Monday.”

Some advisors say they’re trying to get investors with cash on hand to think about putting more money to work in stocks.

“I’m telling clients with cash to really start thinking about putting some money in the market,” said Marc Pressman with Pressman Financial Consulting in Oak Park, Ill.

But advisors also say they will be forced to give unpopular advice to many people in the next few years: Those who have lost so much in stocks that they feel they can’t meet their goals can’t expect to invest their way back to economic health.

“No one wants to hear it, but what people need to do is spend less and save more,” said Wall, a director of the Women’s Institute for Financial Education. “But it’s like saying, ‘Eat less,’ when people want to lose weight. They want a pill. They want the answer that the stock market provided before, which was invest a dollar and you’ll be a millionaire by the end of the week.”

Those days are gone--if not forever, certainly for the near future, planners contend.

Investors should be lowering their expectations for market returns over the next decade, even if stocks are nearing the end of their decline, experts say.

Of course, at this point many individual investors may be happy with any return--as long as it isn’t negative.