Wall Street Woes Worry USC Residents

The recent problems on Wall Street have many Upper St. Clair residents wondering and worrying about their money and investments.

It's a worry that seems to be reminiscent of just a few years ago, when the major problems centered on over-leveraged banks and homeowners. Although recently the issues have been somewhat different, in that they revolve around the debts of countries and their governments, there seems to be a constant theme surrounding all of these matters: debt.

“The magnitude of the market moves in the past week are certainly reminiscent of what we experienced in 2008 and 2009,” said Jayme Meredith, a financial advisor in the Upper St. Clair branch of Hefren-Tillotson. “As George Bailey learned in It’s a Wonderful Life, financial runs can be very damaging. Panic is an unwieldy beast that can leave a path of unnecessary destruction.”

Ted Staats, a financial advisor in the Upper St. Clair office of Midway Financial, thinks that this could potentially be the third Bear Market, and the third recession.

“The most important thing that we should have learned from past downdrafts is that markets can be very volatile. No drop in the markets seems to be caused by the same thing, but they do tend to feel the same. Losing 20 percent is still losing 20 percent, no matter what the cause," Staats said.

But perhaps the most notable difference between today and a few years ago is that corporate America is exceedingly healthy, Meredith noted. Profits remain near record levels with three out of four companies exceeding earnings expectations. Cash balances are at
record highs with the average S&P 500 company holding two year’s worth of expenses in cash.

The most common concern among their clients is whether they should make changes to their current allocations and the perceived potential for the significant loss of wealth.

“Most of the calls are really to reaffirm that their asset allocations are suitable to their risk and their time horizon,” Staats said. “Those who tend to be the more worrisome type are asking ‘what is safe’ because they are concerned about the downgrading of the U.S. debt rating
by S&P.”

“The feeling of helplessness complicates matters,” Meredith said. “Many clients know in their mind that the right thing to do is to not panic and make knee-jerk decisions, but their gut keeps saying, ‘There has to be something we can do.’”

Staats said that the future is hard to predict, as it is hard to determine how the markets will move in the short term, as they react to many stimuli, such as current economic conditions, nature disasters (hurricanes, oil spills, earthquakes) and political environments. In the long run, he said, the value of the markets should reflect the underlying health of the assets they represent.

Meredith predicts that the trend of the broad markets will be flat with high degrees of volatility.

“Economic data has certainly weakened, but not to the point of indicating a substantial economic contraction is inevitable. Corporations are in excellent health and opportunity still exists in many areas, such as emerging markets," Meredith said.

Meredith advises investors to not attempt to outguess the short-term gyrations of the market.

“You cannot predict or control panic. Investors who do not anticipate touching their assets for five years or longer should concentrate on the assets they own and ignore the prices. ‘Pop the hood’ of your mutual funds and look at the top 10 holdings. Ask yourself if those companies will be better or worse in two, five or 10 years from now. If you have a resounding ‘yes,’ close that Internet browser, turn off CNBC and go hug your kids or grandkids. It will be OK," Meredith said.

In addition, it also is important to talk with your financial advisor about your specific concerns and needs, according to Staats. If you and your advisor configure an asset allocation that made sense to you two years ago, and nothing has changed, then you probably would not change your investments.

“Everyone is different, so it is very important to have an ongoing discussion with your advisor so that he may guide you when making decisions, especially in turbulent markets like we have experienced recently," Staats said.

For more information, call Meredith at (412) 434-0990 ext. 1278 or Staats at (412) 831-1400 ext. 310.