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Recession may teach everyone a valuable lesson that a little education goes a long way

Investors still worried, not panicking

Last year at this time, concern among investors was on the rise as the economic picture began to worsen. By the summer of 2008, investor worry had edged over into full-blown panic, and advisors were finding themselves more and more playing the role of counselor.

While investors are still wary, financial planners and brokers are reporting that clients’ blood pressure has dropped noticeably. And, in a strange way the shaky economy has served as a valuable lesson.

Mike Zito is senior vice president Trustmark Wealth Management in Jackson. He said concern is still apparent, but the number of clients who want to just “sell out” has dropped noticeably.

“The fear is still there, but there is less panic,” Zito said. “There is still some hand-holding, but it is better now.”

Zito said investors who have ridden out economic downturns in the past, such as in 2000-2001, are much better prepared emotionally than others. He said it is all about perspective.

“I tell clients to not look at the high, where they were when things were great. If you compare against the high-water mark, then it makes look as if you have sustained a huge loss.”

John Bergland Jr., founder and president of Bergland Wealth Management Inc. in Ridgeland, agreed that perspective — and knowledge — is the key to getting through the tough times.

“We dwell on the downside with our clients,” Bergland said. “We try to prepare our clients from the beginning for times just like these.”

How far is down?

He said the first question he asks of clients is how much they can see their portfolio fall in one year before they become worried. He said establishing that measure helps guard against human nature — to get in when things are good, and get out when times are tough.

“Unfortunately, human nature and emotion cause people to buy high and sell low,” Bergland said. “It is always best to stay diversified and re-balance, not sell. When you sell, you are, in essence, burning money. Never, ever, try to time the market. You’re going to lose.”

A little education goes long way

Advisors are quick to say that a little education can go a long way toward fending off losses. In fact, the recession has at least one bright spot, said Brooke Pennington, a financial planner with Trustmark Wealth management.

“We talk about diversification all the time, but clients really see that advantage when the economy suffers,” Pennington said. She added that many are learning that going for, say, an eight percent return is better than shooting for the big return and the corresponding higher risk.

Zito said the recession and stock market woes should, indeed, educate investors on the need to diversify their holdings. He said figures show that from 1998-2007, someone with a diversified portfolio saw on average a return of 7.2 percent. Those invested strictly in the S&P 500 saw the same return. However, the volatility factor in a diversified portfolio over that period was 6.4 percent, compared to the S&P’s 17.3 percent.

“(Diversified investors) saw the same return, but with roughly a third of the volatility,” Zito said.

Don’t leave the market

Bergland, a National Association of Personal Financial Advisors (NAPFA)-registered financial advisor (his daughter, Tiffany Ballard, also with Bergalnd Wealth Management, is NAPFA registered, as well), said throughout this crisis, he has not advised his clients to leave the stock market, and certainly isn’t now. He points out that from March 9-April 9 alone, the S&P 500 gained 26.61 percent and the Dow Jones Industrial Average gained 23.47 percent.

“The sharp rally in stock prices over the last 30 days may or may not be the beginning of a new bull market,” Bergland said. “A number of analysts and market technicians have dismissed the surge in prices as too much too soon, and expect the downturn to resume in the near future.

“They may well be right. On the other hand, even if this current rally ultimately fizzles out, it offers a preview of what the real thing might look like — a powerful upsurge against a backdrop of very discouraging news that leaves many analysts scratching their heads and market timers watching in frustration as they seek to identify the right time to go back in the water.”

Scandals have hurt

Bergland bemoans the recent investment scandals, which hurt investor confidence even more. Bernard Madoff’s alleged ponzi scheme tops the list.

“NAPFA and the fee-only advisor community are hopeful the new administration, the SEC and other regulatory bodies will enact thoughtful regulations to protect consumers,” Bergalnd said.

Financial advisors at Trustmark Wealth Management are registered through UVEST Financial Services, Member FINRA/SIPC. Trustmark Wealth Management is a division of Trustmark National Bank. UVEST and Trustmark National Bank are not affiliated entities.

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

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