The conversation, after I realized who called, went like this, “Hey, Joe. What are you up to?”
“Not much, I just wanted to touch base with you before I called my retirement plan trustee and moved all of my investments to cash.”
“What would you want to do that for?” I asked in all seriousness.
“What do you mean?” he said, “Don’t you know what has happened in New Orleans and the Mississippi Coast?”
“Of course I do, I have been glued to the news for three days now, but what does that have to do with your retirement plan?” I asked.
“What are you talking about?,” he said. “The economy is ruined. It will take years to recover. People have lost their homes, their jobs….their lives. The Gulf Coast may never be the same.”
Absorbing it all
He’s right, of course. It is a tragedy of massive proportions and we will feel the ramifications of this event for decades. But it will affect our lives, especially here in Mississippi, much more than it will affect our retirement plans. As big as this event is, the world markets are so much bigger that they will be able to absorb this event rather quickly.
If you figure the population of New Orleans at just fewer than 500,000, and add another 500,000 people in Mississippi and Louisiana, that comes to about one million people. The population of the United States is just under 300 million making the affected area just one third of 1% of the U.S. population. It is significant in a very emotional way, especially for those of us who have friends and family that have been misplaced, but when looking at the economy as a whole, it’s hard to see this as a big impact event.
Another way to look at this is by looking back on the events of 9/11. We had myriad calls just after 9/11 asking what to do. Now that we have made it through 9/11 and are able to look back at the real figures on the markets, the market forensics I have seen say that the impact of 9/11 washed itself through the market in about a month and a half. That can be significant for a short-term trader, but for investments in a retirement plan, the danger comes in putting your money on the sidelines. Once that money is on the sidelines, you have to make a proactive decision to put it back in play. That is a very hard decision to make.
The markets tend to go sideways for long periods of time and then make big moves, both up and down, in a very short period. That means that if you are not already in the market when it makes its move, you take a good chance of missing the move altogether.
So, the question is, “When is it big enough and bad enough to get out of the markets?”
The answer is, “I don’t know.”
I have been in the business for 20 years. I have made it through the crash of 1987, known as “Bloody Monday,” the second worse bear market in over a century, 9/11, not to mention many other events such as wars, oil crises and massive corporate malfeasance. And looking back, it seems that those who had a plan and diversified their portfolio were better off to have stayed put.
It is not my intention to sound callous. On the contrary, I have been very upset about what has happened on the Coast. I want to be a part of the team that helps make a difference in the coming weeks, months, and even years as the Mississippi and Louisiana coasts are rebuilt. But many investors are making decisions right now that may affect their investment performance for years to come and, based on those I have talked with recently, there is no more appropriate time than now to weigh-in on what they should do.
Everyone’s situation is different. But for my money, I am going to give some of it to the Red Cross, and leave the rest right where it is and let my investment plan do the hard lifting for me.
Contact MBJ contributing columnist Scott Reed, CIMA, CWA, AIF, of Hilliard Lyons, member NYSE & SIPC, in Tupelo at email@example.com.