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Has investor panic reached its peak?

Last year proved to be one of the most volatile in U.S. stock market history. Investors watched as the value of their investments and retirement plans went up and down with astonishing speed.

While all Americans have always felt the pinch when the stock market takes a nosedive, the average American’s exposure to the stock market widened in 1980 with the advent of 401(k) plans. Since 1980, 401(k) plans have mushroomed. Roughly 17,300 companies were offering 401(k) plans to employees by 1984. By 2003, that number reached more than 430,000.

What is important to remember about 401(k)’s is that they are not defined benefit plans. In other words, the plan does not spell out specifically what return the investor will receive. Instead, 401(k) plan funds are invested, and if the plan’s investments go up, the participant’s retirement does likewise. Of course, if investments go down…

Throughout 2008 and into this year, financial advisors have received more and more calls from alarmed clients, some even panicky, as they watched their retirement funds dissipate. While nervousness still reins, advisors say many of their clients are feeling a little better about the stock market and their 401(k) plans.

“Most people have passed that point. They are not in a panic,” said Nancy Lottridge Anderson, Ph.D., CFA, president of New Perspectives Inc. and assistant professor of finance at Mississippi College in Clinton. “If they haven’t done something by now to lessen their exposure to the stock market, they aren’t going to do it now.”

Anderson said while it is still “dicey,” many of her clients are now at least entertaining the thought of getting into the market. She said the market at press time looked fairly attractive, and the market was performing in an acceptable range.

However, Anderson said for some, it is time for a “gut check.” The stock market still may not be a good investment for some.

“For some, particularly older investors, less exposure to the stock market may be a good thing,” she said. She added that people really do not know what their risk tolerance is until times like these. Income needs and other factors must be weighed. However, piece of mind is a “luxury” many feel they can afford.

“Some investors are willing to earn a little less just to sleep at night,” Anderson said.

Anderson said mutual bond funds are currently offering good buys, and are a viable alternative to stocks.

So, what can be expected from the stock market in 2009? Stacey Wall, president and CEO of Pinnacle Trust of Ridgeland, is known for his pinpoint economic forecasts. His outlooks are often uncanny in their accuracy. For instance, Wall said the U.S. economy entered the current recession in December 2007, months before the National Bureau of Economic Research announced the same.

Wall often bases his forecasts based on historic trends and unique indicators, and he is again using these data for his outlook on 2009.

“After calling for a bottom in stocks beginning Oct. 10 of 7,500 to 8,000 on the Dow, on Dec. 12 we increased our exposure in stocks to market weight in our tactical models. This was after being underweight in our equity allocation for 16 months. In doing so we are responding to increasing evidence that the bear market has ended. An additional increase to overweight will come upon further improvement in momentum, which we believe will be a likely development in the near future.

“Based on one-year seasonal cycles, the four-year presidential cycle and the 10-year decennial cycle, we are looking for an uptrend into late summer. Third-quarter highs have tended to occur in years ending in ‘9’ and in the first years of presidential cycles. We believe 2009 will produce the onset of a new cyclical bull market with a high for the year sometime in mid-to-late summer.

“Our best guess is for a rally of 59 percent to 72 percent on the Dow Jones Industrial Average, which would take the index to the 12,000-13,000 zone.”

Anderson said the market as of late has been flat, adding with a laugh, “Right now, we’ll take flat.”

There has been a bump in the market this month, and that bump could be larger if more stimulus money is released, Anderson said. She said she sees a flat market to continue through much of the year, and said the prospects of “decent returns” are there for year’s end.

Contact MBJ staff writer Wally Northway at wally.northway@msbusiness.com.

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