Don Martin, CFP® quoted in Mercury News 3-3-2009


Financial Planners advise: Stay the course

By Pete Carey

Mercury News
Posted: 03/03/2009 06:55:04 AM PST

Despite Monday's dramatic plunge in the Dow Jones industrial average, sending it to a 12-year low, financial planners are telling their clients to take a deep breath and resist the impulse to dump everything.

Both the Dow and the S&P 500 dropped more than 4 percent Monday, with the Dow reaching its lowest point since 1997 on fears that more pain lies ahead for the nation's financial sector.

The Dow crashed through 7,000 to end the day at 6,763.29, a loss of nearly 300 points, and the S&P briefly dipped below 700 before finishing at 700.82.

Even though the stock market has taken a hit from a financial hurricane, planners tell clients to stick with their investing plan while tinkering with it a bit to get to a place where the risk is acceptable.

"It's tough," acknowledged financial planner Bruce Barton of Prialta Advisors in San Jose. "But we haven't changed our advice. If your long-term asset allocation was correct before, it's still correct. If it wasn't correct, it has to be changed."

Barton says he's spending more time showing clients what happens after market downturns. "It helps them to realize that after a downturn there's typically a substantial upturn."

In a nutshell, many planners are recommending an increase in the amount of cash clients have on hand and encouraging them to allocate more of their portfolios to high-quality bonds, while remaining invested to some extent in stocks because that is the best option for long-term gains.

"People are definitely uncomfortable after they keep reading all this news," said Ranga Srinivasan, a Los Gatos financial adviser with Everest Management. "The advice we are giving them is stick to their plans, but revisit their asset allocation," he said.

Planners worry that frantic action now could create long-term problems. "What happens is, people get so emotional they end up bailing out," observed Chuck Gibson, a financial planner with Financial Perspectives in Newark, "and they do it at the lowest point in the market."

But "things have changed," he said and new strategies will be needed to adapt to "a different time in our lives. The same thing that was successful in the past 20 years is not what's going to be successful in the next 20 years. We're going to find out what the new strategy is, and eventually we'll get back to normal, but I think it's going to be a long period of time."

"Right now we feel that 80 percent of new money that is available ought to be going into cash or into fixed-income securities," said Frank Sowin, principal and editor of Frank Financial Advisory in Sunnyvale. "Cash is king."

Sowin said there will be "more pain" from bursting bubbles in financial derivatives and housing. "What we're seeing now is a correction that will go on for years," he said.

Most planners said they began working with clients months ago to modify their portfolios and investment strategies, as the downturn worsened.

"I've been bearish for quite a while, so this is not a huge surprise," said Don Martin of Mayflower Capital in Los Altos. But investors have to diversify, and Martin cautions against being "too bearish."

Martin is advising clients to move into high-quality corporate bonds rather than U.S. Treasuries, which have minimal yields at the moment.

He also says he sees people who feel like things are under control "if they have enough cash left to pay off their credit card at end of the month." He's urging clients to be much more disciplined in their approach to finances. "They need to run their life like a business."

Esther Szabo of KK Wealth Advisors in Los Altos is telling clients to go longer in cash — instead of having six months to a year of income in cash, to have three years on hand. She also recommends getting expenses under control.

"We're in the middle of this huge change," Szabo said. "It's going to change how we manage our expenses going through this, by choice or by force."

Lloyd Yamada, president of the Silicon Valley Chapter of the Financial Planning Association and president of LSY Financial Group of Cupertino, cautions against panic selling and getting totally out of the stock market.

"Unless you don't believe in the American economy, you should have some portion of your long-term investment in the market," even if only to keep up with inflation, he said.

Contact Pete Carey at pcarey@mercurynews.com.