Experts offer advice on how to survive a rough economy
By Daniel Wolowicz camarillo@theacorn.com

Following the stock market's roller coaster ride the last two weeks, local investors are assessing the damage to their portfolios and trying to come up with a financial game plan that will provide more stability in the days ahead.

As federal lawmakers continue to smooth out details of a proposed $700-billion bailout of the nation's largest finance institutions, local experts offered a few simple tips to help investors protect themselves in a tumultuous bear market.

Stay calm, stay informed

"Don't panic," says Matthew Jones, a certified financial planner with Edward Jones in Camarillo. "Don't be overly concerned with the media noise."

Jones said that even though the economic fallout from the subprime mortgage meltdown has created a volatile market, investors shouldn't rush to sell their stocks.

"The wrong thing to do is to sell at these market prices," he said, adding that the stock market's cyclical nature and history of posting gains should be an incentive for investors to hold tight.

Somnath Basu, a professor of finance at California Lutheran University, agrees.

"From the investor point of view, hunker down," Basu said. "This is not the time to make more speculative investments."

Jamshid Damooei, a professor of economics at California Lutheran University, said investors need to educate themselves on the market and how the current events impact the nation's economy.

"Stay informed," Damooei said. "Listen to more than one source of information to learn more about the economy and the forces affecting the future."

Penny pinchers

Basu said the rough market doesn't mean residents should stash "money in their mattresses," but rather look at their personal budgets and "really tighten the belt."

Basu said American spending habits will have to change in order for the economy to improve. In the 1970s, households saved about 8 percent of total earnings. Last year, household savings were negative 1 percent.

"We need to get this as a grassroots movement," Basu said. "Since our leadership is not helping us, we need to help ourselves."

While economists generally agree that Americans need to reduce their debt and save more, they also say that a reduction in consumer spending could depress the economy even further.

Evaluate your portfolio

Both Jones and Damooei said that governmentissued U.S. Treasury bills are a good investment in a rocky economy.

Jones said TBills offer many investors "peace of mind" because they're guaranteed by the Federal Reserve.

He said that with the uncertain market, now is a good time for investors to reassess their money market accounts and their stock portfolios.

"I would make sure I was in a money market fund that was heavily weighted toward government bonds," Jones said. "Some of the higher-yielding money market accounts are those you may be a little more worried about.

When it comes to stocks, Jones recommends that investors stick with well-established companies with a proven track record of showing a profit and providing a solid return on investment.

Experts also say that investors should not keep more than the $100,000 limit insured by the Federal Deposit Insurance Corporation in any single bank account.

Home sweet home

Steve Carrigan, owner of Camarillobased Carrigan Financial Group, said despite the current bear market, the housing sector may be turning the corner. He gives two reasons why.

First, Carrigan said, median prices for Southern California homes have, on average, risen about 6 percent a year for the past 30 years. During the housing craze, median prices jumped double digits. Those numbers are now coming back in line with historical averages.

"We've already given back most of that excess appreciation," Carrigan said.

Second, he said, the slowdown in home prices means more firsttime buyers can afford to make purchases. Compared to the alltime low of 21 percent of homeowners who could afford to buy a new home in Ventura County three years ago, the current affordability index is 43 percent.

Carrigan said even if the housing market heats back up, the issuance of more conservative bank loans will keep prices stable.

Think positive, long term

Experts say maintaining a positive outlook and not looking at stock prices every day is the best way to keep emotions in check during a steep bear market.

"When we think very negatively, it affects the way we act toward our own family, friends, our colleagues and ourselves," Damooei said. "So I think that's a very important psychological state that we have to be very careful about.

"Do not exaggerate the scenario of doom and gloom," Damooei added. "That's not really necessarily what we're looking at; we're looking at hard times. Hard times do not mean doom and gloom."

When will the market turn?

It's anyone's guess, but like all things economic, the market is cyclical. Despite heavy crashes in 1929, 1987 and following 9/11, the Dow has proven to be resilient.

"I believe the stock market will turn much faster than the housing market," Jones said.