Local investors encouraged to wait during Wall Street woes

Black Monday: What Happened? -Investment bank Lehman Bros. filed for the largest bankruptcy in history. -Bank of America bought out fellow banker Merill Lynch for $50 billion. -American Insurance Group (AIG), the world's largest insurer, found itself struggling to come up with cash. On Tuesday, the ailing company received a life-saving $85 billion from the Federal Reserve Board.

As the financial world picks up the pieces from Monday's near-record stock market tumble, local financial and economical experts are encouraging individual investors in the community to do the one thing that doesn't exactly come to mind during a period of market uncertainty.

Wait.

Monday proved to be one of the most devastating days in stock market history. The New York Stock Exchange saw near-record stock price drops in the major markets, including Nasdaq and the Dow Jones industrial average.

The latter fell below 11,000 points, the lowest point drop since the first day of trading after the Sept. 11, 2001 terrorist attacks.

The drops stemmed from news of a significant makeover of the U.S. financial system. Investment bank Lehman Bros. filed for the largest bankruptcy in history, Bank of America moved forward with a $50 billion buyout of bank Merrill Lynch and the Federal Reserve Board saved the world's largest insurance company, American Insurance Group (AIG), from bankruptcy by lending the ailing company $85 billion.

All three companies are major players, and have immediate implications, on the NYSE floor. But in Maryville, residents shouldn't make any rash changes to their investment portfolios, said Shannon Moore, certified trust financial adviser for Citizens' Bank and Trust.

Moore cited similar "crisis periods" that have struck the stock market over the past several years, including post-Sept. 11 trading and, most recently, the forced sale of global investment bank Bear Sterns to J.P. Morgan in May. In these examples and others, stock prices eventually rebounded, Moore said.

"As a result, making dramatic shifts during periods of crisis should often be reserved for only extreme situations," she said.

An "extreme situation" would occur if someone mistakenly got involved in the stock market for short-term (one to five-year) savings goals, such as getting money for a new car or to pay off college loans, Moore said. The stock market is meant for individuals with long-term investment goals, such as retirement funds. Short-term financial goals are best achieved by purchasing less risky certificates of deposit (CDs) or money market accounts, she said.

"The costs associated with the purchase of stocks and mutual funds, and the market fluctuations associated with such purchases, can make them inappropriate for short-term needs," Moore said.

During times of financial crises, the best route for long-term investors to take is to reevaluate their original goals and decide if their portfolios reflect an appropriate distribution of investments over stocks, bonds and other investment methods, Moore said.

"As I continue to meet with clients during this time, we discuss such concerns. Typically, (original investment goals) are constructed during a time of emotional objectivity. We identify new circumstances that may warrant a change in the current investment strategy," she said. "If we find there are none, the majority of clients find that staying the course is appropriate."

Jason White, associate professor in Northwest's Accounting, Economics and Finance Department, expressed a similar view. Along with managing his own investments, White serves on the Northwest Foundation's board and manages the group's portfolio.

"Quite frankly, I've done very little with my portfolios. Financial crises are unsettling in the short-term, but they do not last, especially for portfolios that have long-term goals of five or more years," he said.