Ask Carrie by Carrie Schwab-Pomerantz

Note to Readers: I'm pleased to be launching Ask Carrie, a personal finance advice column designed to answer your most pressing personal finance questions. My aim is to give you clear, straightforward information and to keep the "personal" in personal finance. So please ask away. You can email me at askcarrie@schwab.com. Unfortunately, I won't be able to respond to you directly, but I will include questions of general appeal in the weekly column.

 

Dear Carrie: I'm 28, and I lost 36 percent of my 401(k). I have it in 45 percent stocks. What should I do — watch my money disappear, or do I move it around? — A Reader

Dear Carrie: I'm 58 this year and hesitant to invest in equities even though I know the conventional wisdom is to buy when the market's down. What's your advice? — A Reader

Dear Carrie: I'm 77 years old and still working. I currently have $480,000 invested, and the value seems to be dropping daily. What should I do to protect the total? — A Reader

Dear Readers: There's no doubt that the past several months have been a strain on everyone's portfolio — and their investing confidence. Across the board, people of all ages and from all walks of life have watched the value of their investments go down. They're looking for some way to ensure that they won't lose more. At the same time, a lot of folks are just sitting on the sidelines, paralyzed by indecision.

So my first bit of general advice to everyone, regardless of age, is to stay involved. You all indicate that you're saving and have money to invest. Don't stop now. Keep doing the right things — saving, investing and taking advantage of any 401(k) match. Then, step back and think about changes you might want to make.

 

General Guidelines Everyone Should Follow — All the Time

First some general guidelines for all investors ...

— Honestly evaluate your feelings about risk. The current market climate provides a great opportunity to take your risk temperature. When times are good, it's easy to be more aggressive. But how do you feel now? Review your mix of stocks, bonds and cash. If you don't have the stomach for dramatic market swings, or you're investing for short-term goals (less than five years), it might be appropriate to gradually reduce your exposure to the stock market.

— Measure your portfolio against the right benchmarks. The reality is that most portfolios have gone down. But so have the markets in general. So to get a meaningful sense of how you've done, you need to look at your relative performance.

For example, take a look at benchmarks like the S&P 500 stock index, which fell 38 percent in the 12 months between May 15, '08 and '09, or the NASDAQ, which went down about 37 percent in the same time period. If you've done worse, pay attention. But if you've done better, perhaps things are not as dire as they seem. Note: Be sure to use the appropriate benchmarks to get an accurate reading.

You don't have to go it alone — Now more than ever may be the time to seek out professional help. Many employers provide access to investment advice as part of their overall benefits package, and increasing numbers of brokerage firms offer complimentary consultations. If you're unsure of what to do, by all means reach out to someone you can trust.

Now some thoughts more specific to individual life stages ...

— Twenty-eight and watching money "disappear." Time is your greatest asset.

As a young investor, your age is a huge advantage — especially for your retirement savings. Even though the stock market has swooned, I still believe in its long-term potential. So if you're not going to use your savings for decades, you should have plenty of time to ride out the current storm — and to benefit when the markets turn around. And although you have to consider how much risk you're willing to take, in general, a 45 percent exposure to stocks is actually fairly conservative for someone in their twenties.

— Fifty-eight and worried: There's still time for growth. I certainly understand a hesitance to invest in stocks, but in your fifties you still have time to realize some growth. And while no one can say if we've hit bottom, there are glimmers of hope that the economy is starting to recover. Also look at the alternatives. Cash may feel safe short term, but long-term returns on money markets and Treasuries tend to be negative after inflation. That said, you should always keep enough cash to cover at least three to six months' expenses in interest-bearing FDIC-insured accounts. That way you won't be forced to sell an investment at the wrong time.

Seventy-seven and still working. Be realistic about your time frame. At this point in life, protecting your savings is a high priority. My first concern would be that you have enough cash on hand to cover your expenses for at least a year, ideally three to five years. If you own stocks, that doesn't mean you should sell everything now and realize a loss, but it does mean making a gradual shift to investments like bonds and FDIC-insured CDs. If you're still saving or contributing to a 401(k), consider putting new money into these more conservative investments.

Good luck to you all.

Carrie Schwab-Pomerantz is is president of the Charles Schwab Foundation. You can e-mail Carrie at askcarrie@schwab.com. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

COPYRIGHT 2009 CHARLES SCHWAB & CO.