What Now?
You and Your 201(k)

Story by Joseph O'Brien

I recently noticed a billboard alongside I-84 East, just outside Hartford, that offers some valuable financial advice to those of us wondering what to do with our cracked and broken nest eggs since the nation’s financial bottom fell out.

“Hysteria fuels recession,’’ reads the message, one of more than a half-dozen light-hearted jabs at our collective anxiety
over the current state of economic affairs.

“Chill.”

Good advice. But that’s easier said than done as the values of many once reliable investments — real estate, stocks, bonds and such have declined sharply.

I, like many, could only watch as the value of my 401 (k), headed south. I now jokingly refer to it as a 201. If only the demise of my family’s financial security were that funny.

Those savings were like a friend that I presumed would always be there. Now that it’s gone away, I haven’t felt the same and that’s apparently true for many.

The feelings we’ve experienced as a result of the present global financial fiasco are similar to the phases of grief, says Martin Geitz, president and chief executive officer of the Simsbury Bank.

When you stop to think about it, he’s right. There’s denial, anger, bargaining, depression and, hopefully, acceptance because that’s the only way to move on and rebuild. For those of us stuck on denial, however, it might be a little harder and longer road out of what Geitz and many others describe as “the worst economic downturn since the Great Depression.”

Denial is not a reasonable approach to the reality of losing a job or savings. Okay, you can get angry, bargain all you want and get depressed about it, but that’s not doing you a lot of good. Accept those losses as real, count the eggs you still have and move on.

Geitz, whose bank mainly serves communities in the Farmington Valley, and the other folks in finance I talked to recently are all very positive about the economic future and they’re willing and more than able to help those who feel the need.

“In this environment, it is important for investors to make decisions as rationally as possible,” says John Eckel of Pinnacle Investment Management Inc., also in Simsbury.

Contributing to the panic is the seemingly endless flow of “bad economic news in the media,” says Eckel. The urge to abandon a sinking ship or a shrinking investment grows when you focus only on the problem and not a possible solution, like plugging the hole.

Eckel says it may not make sense to sell off certain investments even if their value has declined dramatically. Like other advisers, Eckel recommended patience and a back-to-basics approach to building wealth. The mantras that have governed investing in the past — diversify, know and respect your tolerance for risk, and think of investing as a long-distance jog, not a sprint into easy money — should not be forgotten just because the market is down.

“Investors need to be forward-looking rather than spending their time looking in the rear view mirror,’’ Eckel says. “Last year, having a diversified portfolio was not much help, however, that does not mean it will not work in the future.’’

It’s important to remember that the worst of the recent financial meltdown was driven by greed and fear. But while only an unfortunate handful of people were sucked into the big debacles, such as Bernard Madoff’s Ponzi scheme, many of us became a little bit too comfortable with the idea of 10 percent returns on our investments and exponential increases in the “value” of our homes.

Geitz says it’s important to remember that Madoff was an investment manager who controlled the money of investors — to a great extent for his own benefit — and not an investment planner who recommends investment strategies based on each investor’s goals.

Mike Sclafani, a vice president of First National Bank of Litchfield, suggests that as many pause to assess their damaged investments, it’s a good time to re-assess the value of money and consider its worth in some less tangible ways. Consider perhaps how money can change lives and improve the world by supporting a greener lifestyle or “taking care of those who are less fortunate,” he says.

“It’s a good idea to talk to your children about spending. Teach them about money and how it’s used.” And get real.

You should also remember that the value of a dollar is a relative concept that goes up and down, depending on perception. Each of us should be prepared to determine a reasonable value of any commodity and be prepared to walk away from prices that seem unreasonable.

People need to remember why they started investing in the first place. Investing seemed like a sensible way to save up for something you wanted – a new home, college for your children, a comfortable retirement.

Goals, says Carolyn O’Connell, should still be what investing is about.

“The lesson in all this is responsible investing,” says O’Connell, vice president and registered principal with Gateway Financial Group Inc. in Glastonbury. “A disciplined investment approach can help remove emotion from the investment decision process with the same long-term outcome.”

Many investors followed the same aggressive investment strategies that worked well in the bull markets of the ‘80s and ‘90s into this bear market and paid the price in significant losses, O’Connell says, adding that a strong defense will better navigate the uncertainties of a volatile market.

Although the glitter of the stock market may not be what it was, a group of young entrepreneurs in Glastonbury who played Little League baseball together not too long ago are so bullish on the economy’s potential that they’re betting their futures on it.

Joseph Covill, 28, and brothers Nicholas Roy, 27, and Robert Roy, 28, this year opened Somnio Financial Group, a retirement planning firm ready to guide Generation-Next into the golden years. For anybody wondering, somnio is the Latin word for dream.

Robert Roy may be young, but he sounds a lot like your father’s financial planner. Although saving and investing are important, he stresses that it also is important to keep enough cash on hand to cover emergencies or unforeseen expenses.

Roy preaches a conservative approach to both saving and spending. Investors, he cautions, should not expect the immediate gratification of instant, double-digit returns, and people can no longer count on windfalls from investments or real estate appreciation to buy things they could not otherwise afford.

The market, he says, is efficient over the long haul. Live within your means, have realistic expectations and forget that the 1980s ever happened. Don’t, Robert Roy warns, “go to the casino with your mortgage payment.’’

Meanwhile, along that busy stretch of highway in the capital city, the quirky witticisms paid for by an anonymous donor appear long enough to be read and then vanish, giving us time to reflect.

I like the one that reads: “This will end long before those who caused it are paroled.”

This may or may not be true, but at least I have something to look forward to.

 
* Disclaimer from Carolyn O’Connell: Registered representatives offer securities services through National Planning Corp. (NPC), member of FINRA/SIPC. Gateway Financial Group and NPC are not affiliated companies.

Joseph A. O’Brien is a freelance writer who lives in Andover.