Financial Planners Answering More Distress Calls

Some investors’ confidence in the stock market may be starting to wane, if calls to their financial planners are any indication.

Planners said Tuesday that they are fielding more calls from worried clients. That’s a change from other market downturns of recent years, when planners reported little concern from investors, who seemed sure of a quick market rebound.

“I’m starting to have people ask me, ‘Is this the beginning of the end?’ ” said Phillip E. Cook, a certified financial planner with Financial Network Investment Corp. in Torrance. “They’re asking, ‘What should I do now?’ ”

Cook and other planners said some clients who stoically weathered previous market downturns in recent years are disturbed because this time stocks aren’t quickly snapping back.

Tim Kochis, an Oakland certified financial planner, said his firm has heard from about 10% of its clients since they received their last quarterly update earlier this month. The average U.S. stock fund dropped 0.3% in the second quarter, which ended June 30.

“In general, most of their portfolios are down a little bit, and that’s what prompted them to call and inquire about our assessment of the market,” Kochis said.

He said he expects a few more calls as clients hear about Tuesday’s 299.43-point drop in the Dow Jones industrial average.

Many financial advisors said they believe market downturns are good opportunities for aggressive or long-term investors to buy more stocks at cheaper prices. Nonetheless, some advisors had already taken steps to reduce their clients’ exposure to the stock market, either by shifting away from overvalued large-company stocks or by trimming stock allocations altogether.

Several planners said they started moving away from large-company stocks earlier this year as the Dow, which measures the performance of 30 big-company stocks, passed the 9,000 mark and even some bullish commentators began to worry about overly high stock valuations. Most said they beefed up exposure to European financial markets and reduced the amount of small-company stocks in their clients’ portfolios.

Small companies have been under-performing the general stock market for so long that “they were kind of thwarting overall returns,” said Martin von Kanel, a Torrance certified financial planner and president of the Los Angeles Society of the Institute of Certified Financial Planners.

Ross Levin, an Edina, Minn., financial planner and expert in asset allocation, said he shifted clients’ stock mutual funds away from growth-oriented managers, who pick stocks based on expectations that the companies’ earnings will climb, toward value-oriented managers, who choose stocks of companies they believe to be undervalued. Levin made the switch believing that undervalued stocks would hold up better in a market correction.

A few, including Irvine planner Victoria Collins, have been trimming their clients’ exposure to stocks in general and instead boosting investments in bonds and cash, which mostly held or increased their value as stocks fell.

“Where we once might have had 100% in stocks [for a client], we now have 80%,” Collins said. “That extra cushion of comfort is truly key in this type of environment.”

Collins said she believes the oft-repeated truism that stocks are the best-performing long-term investment. But she also believes it is easier for clients to stay the long-term course if at least some parts of their portfolio are performing well.

“Human nature is such that we say we’re long-term investors but we tend to evaluate our investments on a quarterly basis or a daily basis,” said Collins, a certified financial planner who holds a doctorate in psychology. “Then we shoot ourselves in the foot by getting out of the market at the wrong time.”

Several planners said talking to their clients in advance about possible market downturns has helped mute reaction to the recent turmoil.

“We told them there’s going to come a time when the market declines and it isn’t going to feel good,” said Collins, who said she had received no calls about Tuesday’s market drop.

But some advisors said they worry about investors making hasty decisions in accounts the advisors don’t control, such as 401(k) plans and other work-related retirement plans.

More than 35% of mutual fund assets are held in retirement accounts, according to figures collected by the Investment Company Institute, the chief mutual fund trade group.

Levin said investors should resist the urge to tinker with their retirement accounts without first thoroughly reviewing their goals, the length of time they have until retirement and how much risk they’re willing to take.

“The key thing is determining the time horizon for your investments,” Levin said. “If you need the money in three years or less, you shouldn’t be invested anyway; you should just be saving” in a money market account.

Next, investors should determine whether their mix of stocks, bonds and cash makes sense for those long-term goals. Typically, the longer an investor has until retirement, the greater proportion of the portfolio he or she should have in stocks and stock market funds. Rather than revise their strategy after every market hiccup, investors would be wise to view downturns as an opportunity to buy stocks “on sale,” Levin said.

“They should review their strategy, make sure they have an appropriate investment policy and then stick to their guns,” he said.

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Are They a Bargain?

A look at selected blue-chip stocks off significantly from their 52-week highs.

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Stock Tuesday % change from PPE* PEG** Stock close 52-wk high PPE* PEG** Hewlett-Packard $52.00 -36.3 17.0 1.2 Boeing 36.88 -34.2 27.0 1.9 DuPont 60.75 -26.6 17.7 1.7 Goodyear 56.88 -24.9 11.4 1.2 3M 73.63 -24.4 19.0 1.7 Sears 48.25 -24.3 14.0 1.1 Disney 32.81 -22.6 33.8 1.9 Caterpillar 47.25 -22.1 10.3 1.1 International Paper 43.00 -22.1 34.6 4.3 J.P. Morgan 116.88 -21.4 14.9 1.5 Procter & Gamble 77.75 -17.3 27.2 2.1 AT&T; 56.75 -16.5 16.5 1.6 Alcoa 65.63 -16.9 13.6 1.5 McDonald’s 62.50 -15.7 24.9 1.8 Union Carbide 46.88 -15.7 14.2 1.6

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*Price-to-earnings ratio based on estimates for the next year.

**Projected price-to-earnings ratio divided by projected earnings growth; the lower the figure, the better the value, according to some value-oriented investors.

Source: Bloomberg News

Where Damage Is Being Done

Standard & Poor’s stock industry groups with the biggest recent price declines over selected periods through Tuesday:

Five Days

Household products: -10.26%

Office equipment/supplies: -9.50%

Health care/HMOs: -9.13%

Airlines: -8.87%

Savings and loans: -8.51%

Oil equipment/services: -8.15%

Oil and gas drilling: -8.10%

Engineering/construction: -7.86%

Retail stores: -7.69%

Autos: -7.55%

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One month

Oil and gas drilling: -29.90%

Engineering/construction: -22.88%

Oil equipment/services: -22.63%

Health care/HMOs: -19.90%

Oil exploration/production: -18.86%

Shoes: -18.78%

Machinery (diversified): -16.61%

Electric instruments: -16.28%

Property/casualty insurance: -15.66%

Major oil companies: -15.50%

Source: Bloomberg News