Tips offered to ease financial fright

By Don Shilling

Investors don’t need ghosts and goblins to spook them this Halloween. Losses in their retirement accounts are scary enough.

With major stock markets down about 30 percent this year, stock-based mutual funds in 401(k) investment accounts have taken quite a hit. Who needs Freddy Kreuger when a $100,000 investment is now worth $70,000?

“Newer investors get scared,” said Eric Martin, a branch manager with Commonwealth Financial Network in Boardman.

Martin said the biggest part of his job right now is keeping clients focused on their long-term goals and sticking to their retirement planning.

He and other area financial planners said younger investors should see the down market as an opportunity.

“If you’re 55 and younger, keep feeding your 401(k),” said Gene Emery of the E.R. Emery Agency in Vienna.

It’s even time to consider increasing the percentage of your income that you place into a 401(k), said Michael Creatore of Creatore Wealth Management in Boardman. With mutual fund prices being down, investors can buy more shares for the same cost, he said.

“Right now, everything is selling at a discount,” he said.

All of the advisers are confident the market will rebound eventually. As it does, they suggest investors have a blend of stocks, which are more aggressive, and bonds, which are more conservative. As the investor ages, the portfolio tilts more toward bonds so the investor doesn’t lose much money if a down market hits right before retirement.

Allocations depend on age, account values and risk tolerance, but Martin said a rule of thumb is to subtract your age from 110 and place that percentage in stocks. For example, a 40-year-old would have 70 percent of a portfolio in stocks. At age 50, the investor would have 60 percent of the money in stocks.

Martin said the rule used to use 100 as a basis, but that often is considered outdated because people are living longer and need a larger nest egg to make it through the extra years.

Many people think they should have all of their money out of stocks when they retire, but that’s not always the case, he said.

“If you are 65 and married, the odds are that either you or your spouse will live until age 90,” he said.

That means 25 years of living have to be funded. The makeup of a retiree’s portfolio depends on whether the person plans to keep working part-time, if money has to be withdrawn for living expenses and other factors, Martin said.

He noted that many mutual funds allow investors to choose an option that automatically rebalances a portfolio as the person ages.

Emery said older investors can keep part of their money in stocks but choose from less volatile funds. He said, however, that he recommends investors move their money out of stocks and into fixed-interest accounts 12 months before they retire.

That way, they can lock in their account values and not subject them to a market drop.

“If they haven’t done that, they have a dilemma and a real tough decision to make,” Emery said.

With little time to make up significant losses, these investors have to consider how much they think the market will rebound and whether it will happen quickly, he said.

For investors who haven’t been checking their account values online, they are in for a shock any day now. Account statements should be arriving in the mail for the quarter that ended Sept. 30.

Creatore said he doesn’t recommend investors avoid the scare by putting the statement away without opening it. The best way to handle the account is to review it to determine if changes need to be made in investment funds, he said.

shilling@vindy.com