Worried what the political wrangling over federal debt might do to the stock market, Raymond Byrne decided last month to shift around his retirement savings. What had been in stock funds, he transferred to debt securities.
Last week, after President Barack Obama signed the last-minute debt deal, Byrne considered moving some money back to stocks. But, out of an abundance of caution, he decided to wait for some fresh data on the economy.
That hesitation saved him from Thursday's 513-point drop of the stock market, its worst one-day plunge since late 2008.
"I'm counting my blessings, " said the retired federal investigator, who is now a partner in a furniture and garden decor shop in Avondale Estates.
Byrne was luckier than most folks.
After steadily falling during the two weeks Republican and Democratic lawmakers were at an impasse, the stock market tumbled amid growing worries over the slowing economy. Friday, the Dow Jones Industrial Average ended up about 60 points to close at 11,444, capping a week in which the stock index fell almost 700 points, or 6 percent. And late Friday, after the markets closed, Standard & Poor's took the unprecedented step of downgrading the U.S. credit rating.
The week's events have many saying, "here we go again" and wondering what to do as they watch their 401(k) retirement savings shrink again. Do investors dump their stock mutual funds and shift to less volatile things, like cash and bonds? Do nothing? Or maybe even go bargain hunting?
About the only thing most financial experts agree on is that panicking during a plunging market is a bad idea. Most say that investors should have already set up their portfolios to weather such mishaps with the correct mix of investments to fit their needs and tolerance for risk.
The closer you are to retiring, for instance, the less stocks and other volatile investments you should have in your portfolio, because there's less time to recover from a financial setback.
"It's frustrating because you have to be putting your seat belt on before the crash, " said Dorsey Farr, an economist who advises investors at French Wolf & Farr in Buckhead. He said he tried to prepare his clients for such a decline by shifting more money to less risky fixed-income investments.
"Part of our job is telling people not to panic, " said Bill Bolen, chief investment strategist at Homrich Berg. "The worst thing you can do is buy and sell based on emotion."
He said the Atlanta-based firm, which manages $2.2 billion in assets, had already reduced its portion of U.S. stocks in most clients' portfolios. It also warned clients earlier in the year that there was "a good chance that the market might turn sour in the second half of the year, " he said.
A 35-year-old investor who is decades from retirement can simply ride out the ups and downs, he said. But for older investors, "if that roller coaster ride [last week] freaks you out, then maybe you had the wrong allocation, " he said. It might be a good idea to talk to a financial adviser to come up with a better mix of investments, he said.
Other experts think the stock markets' fall should be a wake-up call for investors to shift to less risky assets that will better withstand a potential double-dip recession.
Stock markets around the globe plunged last week after a slew of recent data pointed to a weakened manufacturing sector, high jobless claims, flat consumer spending and slower-than-expected economic growth in the United States.
Dan Geller, chief research officer at Money Anxiety Index in San Francisco, said the weak economic data was foreshadowed by his index, aimed at measuring consumers' worries about their financial well-being. That index has been rising for five months, recently hitting its highest level since the 1981 recession.
Since consumer spending accounts for about two-thirds of the economy, he thinks there's about an 80 percent chance of another recession by early next year.
"Definitely expect a lot of [stock market] volatility in the near term, " he said. "It's not going away." He's holding mostly cash in his own portfolio, he said.
Farr, likewise, has been ratcheting up the odds of a recession, but he puts it closer to 30 percent.
Still, he has been expecting a rough ride.
While many had expected the stock market to rebound after the federal debt limit deal was reached, the recent poor economic data was "too bad to ignore, " he said.
His firm, which manages $265 million in assets, has been advising clients, mostly wealthy individuals and institutional investors such as pension funds, to expect a weak economy and possible deflation --- or falling prices --- that would favor investments in bonds rather than stocks.
In that environment, he thinks many investors should be holding more bonds and junk bonds that would rise in value if interest rates drop.
He thinks European and Japanese stocks are a better value than U.S. stocks.
"Just because U.S. equities have gone nowhere for 12 years does not mean they will tend to outperform in coming years, " as some might expect, he said. "Losing a decade is very costly. You don't want to do it more than once in a lifetime."
But some investment managers, even if they're sitting on their hands now, may go bargain-hunting if the U.S. stock market drops further.
"We're generally not that excited about stocks over the next few years, " said Bolen, but a bigger decline --- and cheaper stocks --- might change his mind.
"We are long-term investors, " he said.
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