The current financial crisis in the U.S. has people with investments, mortgages or just day-to-day expenses wondering what to do next.
Local investment counselors say the Wall Street woes didn't happen overnight, and there may be a long road to recovery, but people shouldn't panic.
John P. Washburn of Wachovia Securities in Johnstown said the crisis was caused by loosening of lending regulations several years ago.
The Leader-Herald/Bill Trojan
ParaPlanner Lisa Hart of Wealth Pro in Gloversville works on an investment project with Neal Solomon of Wealth Pro in his office Thursday.
"Investment banks had lending requirements lowered so they could double up on bad investments," Washburn said Wednesday. "In times like these, people need to stick to basics."
Washburn said people should look long term and invest with companies which show real value as well as businesses with good survival strategies.
Washburn said the possibilities of investment can be complex, but basic reasons for investment and money management stay the same.
The Web site Bankrate.com asked a group of investment professionals and investment journalists to weigh in on how investors should prepare for or invest in hard times. They answered:
Pay down loan balances and earn a guaranteed return.
Look beyond tomorrow's headlines.
Stay the course.
Find your sleep number or re-evaluate your attitude toward risk.
Start looking for value plays.
Keep money in stocks.
Don't chase yield.
"A financial adviser can help sort out an asset-allocation program," Washburn said.
He said diversification of investments with a long-term horizon is the key to stability in an ever-changing market.
A Securities and Exchange Commission graph in Washburn's office shows the peaks and valleys of the national monetary funds since 1892. While dips like the plunge of 1929 show up on the graph, there is also the gradual rise of market growth over a period of years.
"The individual investor has the advantage of being wary and taking some time to make a decision," Washburn said. "Check out if the business you want to invest in has a good track record."
Washburn said staying with a local investment counselor who has an eye on the local community and wants to keep the local economy afloat always is a good idea.
"I like to work with clientele with a long-term perspective," he said.
Neal Solomon of WealthPro in Gloversville agreed with much of what Washburn said. He said his clients weren't panicking with the Wall Street concerns because he has prepared them for the possible downturn in the economy and what they should to do when it happens.
"A lot is happening right now," Solomon said Tuesday. "This is really the unwinding of what began in the early 2000s and the Internet bubble of 1998 and 1999."
Solomon said dot.com stocks peaked with paper profits and without real value. When they plunged in estimated worth with Y2K, a "Bear Market" took over until Sept. 11, 2001, and the following war.
"Government encouraged consumer spending," Solomon said. "The president was the 'Consumer in Chief.'"
Solomon said money was pumped into the financial markets with the noble goal of having people own their own homes, but when lending standards loosened too much and people allowed more than 25 percent of their incomes to go toward mortgage payments with adjustable rate loans, the possibility of having to pay most of their income into a mortgage erupted.
"People bought into no-money-down, interest-only loans for up to 50 percent of their incomes," Solomon said. "And those adjustable rate loans could make their payments double."
Solomon said such a system was doomed to failure. It caused the real estate bubble of 2003 to 2007.
"It wasn't 'real' money, so people bought more than they could afford," Solomon said.
He said unemployment rates have not increased dramatically, and there are things people can do to stabilize thier financial situation. Food is in abundance, and even with rising prices the situation is manageable. He agreed with Washburn that people shouldn't panic.
"Fear does horrendous things," he said.
Solomon said investors should stay with the basics - reduce debt, pay off credit cards, put something in savings. If the government gives out more economic stimulus checks, use them wisely.
"It's not my clients' obligation to do what the government says," he said.
Diversification of investments, both in and out of the country also is a good thing, he said.
Solomon said people should also trim extra spending, live modestly and look out for their neighbors.
"Take care of those around you," he said. "The community needs to focus on essentials."
Solomon said debt is a killer and people need to build up their savings. They need stable employment and may have to work past their original target for retirement.
"People in the depression survived by looking out for their neighbors," he said. "Our grandparents lived through this. People can learn to fix things for themselves."
He said for the average person, that may mean changing one's own oil.
Ron Zimmerman of Gloversville works for Smith Barney in Schenectady and agreed with much of what Solomon and Washburn said.
"Don't change your long-term plans because of a short-term problem," he said. "The system works."
Richard Nilsen is a general assignment reporter and can be reached by e-mail at firstname.lastname@example.org