Stocks started way down at the open, showed hope in the middle of the day, and then tanked once again in the afternoon to finish way down yet another day.
Financial Planners are reaching their wits end in advising their clients.
401(k) participants who stuck with equities saw balances grow.
Here are the top financial stories of the day:
1) Stocks turn lower as traders prepare for weekend-From the AP
A growing belief that the country is headed toward recession gave the stock market its fourth straight week of losses.
The anxiety in the market was obvious Friday as the major indexes went from modest gains early in the day to another sharp loss. The Dow Jones industrial average had its 10th move of more than 100 points this month.
"We just don't know whether we're going to have a recession," said John Burke, head of Burke Financial Strategies.
Investors began the week on a more confident note after last week's volatility, the worst the market has had since the 2008 financial crisis. The Dow rose nearly 215 points on Monday when Google, Time Warner Cable and Cargill were among companies announcing multi-billion deals. The market remained relatively calm the next two days. But on Thursday, a stream of bad economic news in the U.S. combined with worries about Europe's debt problems and sent the Dow down 419 points.
On Friday, there was little news to help investors determine their next moves. And some traders did not want to take the chance of holding stocks if bad news came out of Europe over the weekend. So they began selling during the afternoon. European investors were also cautious -- banking stocks fell near two-and-a-half-year lows, dragged down by rumors about banks' potential losses on bonds issued by heavily-indebted governments.
"These things usually break out over the weekend and then you have a mad dash Monday to react to them," said Mike McGervey, the head of McGervey Wealth Management.
The drop late in the day recalled the 2008 financial crisis. Then, many investors stepped up their selling on Friday afternoons out of fears that another bank might fail over the weekend -- as Lehman Brothers did on Sunday, Sept. 15.
The Dow lost 172.93, or 1.6 percent, and closed at 10,817.65. It was down 4 percent for the week. Since July 21, right before the market began its plunge, the Dow is down 15 percent.
The Standard & Poor's 500 stock index fell 17.12, or 1.5 percent, to 1,123.53. It was down 4.7 percent for the week. The Nasdaq composite fell 38.59, or 1.6 percent, to 2,341.84. It was down 6.6 percent for the week.
2) Last Straw or Time to Buy? From The Wall Street Journal
Laurence Montello, a certified financial planner in Palm Beach Gardens, Fla., stayed the course through the stock market's swings earlier this month. Now that stocks are slumping again, led by Thursday's 3.7% decline in the Dow Jones Industrial Average, he is urging clients to bail out.
"Three weeks ago, I would have said: 'We're in it for the long haul,'" Mr. Montello says. "But we don't want to see these $200,000 to $300,000 swings in performance in a $5 million account."
Mr. Montello now is advising clients, many of them retired, to move 20% of their stock portfolios into cash and 10% into Treasurys.
Greg Zandlo, a certified financial planner in Coon Rapids, Minn., went further: He advised clients Thursday to move their investments completely out of equities. "Stocks that have a 5% dividend are great, but what kind of consolation is that going to be if they're down 10%?'' he asks.
After the 419.63-point selloff by the Dow, many individual investors are finally throwing in the towel. They were already nervous. Investors withdrew $23.5 billion from domestic equity funds during the week ended Aug. 10, more than in any single entire month since October 2008.
On Thursday, trading volume at discount broker Scottrade Inc. was 77% higher than the day before and 50% higher than average of the four previous days, while TD Ameritrade also said volume surged.
Relyea Zuckerberg Hanson LLC, a wealth-advisory firm in Stamford, Conn., that manages about $500 million, has been working hard to keep its clients calm. Carl Zuckerberg, its chief investment strategist, has sent out three client emails in the past week.
"We're fighting the perception that something unusual is going on,'' he says, "when what's really unusual is a prevailing end-of-the-world mindset.''
Janet Moffett says that her stomach dropped on Thursday as her anxieties about the economy worsened. The 73-year-old Beverly, Mass., resident, who retired in April, planned to call her financial adviser after she "settles down'' to ask that he move more of her $200,000 investment portfolio into cash. Otherwise, she says, "I think I am going to be wiped out.''
To guard against the kind of volatility that led the market's "fear index"—the VIX, short for the Chicago Board Options Exchange Volatility Index—to spike 38% on Thursday,Mark Singer, president of Safe Harbor Retirement Planning in Lynn, Mass., is reducing his clients' equity exposure by up to 25%. Mr. Singer, who manages $70 million, has sent out six emails to clients with what he calls "group hugs'' to assuage their fears.
Ted Sarenski, chief executive of financial adviser Blue Ocean Strategic Capital, is telling his clients to keep at least 20% of their total investments in cash. "While it might not be earning anything,'' says Mr. Sarenski, whose Syracuse, N.Y., firm manages $150 million, "that cash at least isn't losing value.''
For investors who are panicking, T. Rowe Price Group Inc. suggests putting a process in place for liquidating portions of your portfolio gradually—such as liquidating 10% today, and then later, maybe in a week or a month, liquidating another 10%, until you "regain your emotional equilibrium,'' says Christine Fahlund, a senior financial planner at the Baltimore firm.
The slide has other advisers reassessing their assumptions. Devin Pope, a certified financial planner in Salt Lake City, has ratcheted back his performance assumptions for future rates of return on equity portfolios to the 5%-to-6% range, from 7% to 8%.
For a "balanced account'' with at least 30% bonds along with equities, he has reduced the projected rate of return to 3.5% to 4%, down from 5% to 6%.
His reasoning: With governments grappling with deficits around the world, "we're going to have to have a decrease in government spending and an increase in taxes to combat those deficits,'' Mr. Pope says. "That's going to put stress on GDP and consumption-and limits the earnings we're going to see for the next five to 10 years.''
Not everyone is pulling the plug. Christopher Cordaro, a wealth manager at RegentAtlantic Capital LLC in Morristown, N.J., says that he and his clients are holding tight. "We're in a slow-growth recovery that will have a lot of volatility associated with it,'' Mr. Cordaro says. "But there's not enough bad economic news to get out of the market.''
3) Retirement savers who didn’t blink saw big gains-From MarketWatch
Did you stick with your investment plan through the madness that was the stock market in 2008 and early 2009? If you did, new evidence suggests your 401(k) account balance grew by a much larger amount than savers who jumped out of equities, even temporarily.
For 401(k) investors who kept with their equity allocation and continued to contribute to their plan as the financial markets went into free-fall in late 2008, their average account balance grew by 64% in the period from Oct. 1, 2008, through June 30, 2011, according to a Fidelity Investments study published Thursday.
But the average account balance grew just 2% in that time period for retirement savers who moved their money entirely out of equities between Oct. 1, 2008 and March 31, 2009 — and stayed out of equities through June 2011, according to Fidelity’s study of 7.1 million 401(k) people who participated in the plans it manages from Oct. 1, 2008 through June 30, 2011.
Some savers exited equities during the 2008 downturn, but then jumped back in at some point: Their account balances grew by 25% on average. The percentage change in average account balance includes both the workers’ contributions plus market gains or losses.
The majority of plan participants stuck with their game plan. Just 1.6% of the participants studied shed their equity positions, according to the study.
Another 1.4% of people stayed in equities but stopped contributing to their plan in the Oct. 2008 through March 2009 period. Maybe they were afraid of throwing more money into the market, or perhaps the household suffered a job loss and they needed that money to pay household expenses. Account balances for those plan participants rose 26% on average, through June 30, 2011.
“People either had one response or the other,” said Beth McHugh, vice president of market insights at Fidelity. “Either, ‘I’m getting out [of equities] altogether,’ or, ‘I’m not going to add any more to the market; I’m taking my money elsewhere,’” she said. “A small subset did both — that was about 5,000 participants.”
Quote of the Day from Dave Ramsey.com:
Are you bored with life? Then throw yourself into some work you believe in with all your heart, live for it, die for it, and you will find happiness that you had thought could never be yours. — Dale Carnegie
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