The government bailed out insurance giant American International Group (AIG) Tuesday. A similar move was seen recently when it took over control of Fannie Mae and Freddie Mac.
Earlier, hundreds were rushing into IndyMac banks to close their accounts. This week, Lehman Brothers filed for bankruptcy and Merrill Lynch sold itself to Bank of America. Countrywide was one of the first on the list to go belly up.
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In the meantime, what should the public do to protect their finances? Several local professionals provided some perspective on the issue.
Now is a good time to review one’s financial portfolio and take an inventory of where investments are, Wolverton said.
“It’s too late to get out of what you are in,” said Tom Kenning, regional president for Alpine Bank. “If you are still in, the financial stocks are not a bad place to stay. ... There are reasons not to be pessimistic. Hopefully, if you were diversified you didn’t have more than 5 percent in financial stock.”
Both Wolverton and Kenning explained that struggling stock is mostly in the financial area. Consumer goods, oil companies and technology are still doing well.
This is why it’s important to make sure one’s portfolio is diverse and balanced.
For those who are looking to invest, Jim Elder, adviser and owner of ElderAdo Financial, said he’s “dollar-cost-averaging” into investments during these times.
Dollar-cost-averaging is investing a consistent amount over a period of time and taking advantage of the highs and lows in the market, said Wolverton.
“There is really no place to hide your money right now because everything is getting affected from stocks to bonds,” Elder said.
However, if one wants to go the safer route, CDs, money markets, bonds and treasury bills might be an option.
Kenning warns, though, that one should consider a money market fund that is invested only in government securities.
Though large firms are in trouble, locally owned banks seem to be in good standing, Kenning, Wolverton and Elder agreed.
“In 1929, the problems started on main street and work their way through the country. This time they started at Wall Street and I don’t see them affecting the smaller community banks,” Kenning said.
However, Elder said banks aren’t necessarily a long-term investment solution, but rather a place to “park” your money.
The scariest part of the “financial meltdown” is its difference from previous financial events.
“These are things that haven’t happened before,” Elder said.
Government bailouts will most likely lead to higher taxes in the future to pay for the mess, he said.
The strain on the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) is also a concern.
“The greed in the market created a bubble and the bubble has to burst,” Kenning said. “What we haven’t seen (before) is the damage it (wreaked) on these big firms — to be down where there are just three or four major brokerage houses.”
Elder said there are some similarities with the 1980s Savings and Loan crisis and the ‘29 stock market crash.
However, hopefully the numerous laws in place to prevent the same things from happening will be sufficient.
Until then, they advise against panic.
Worried about your money?
This week's Wall Street financial crisis has people worried about their money.
BANKS: Most banks are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures up to the legal limit of $100,000 for each depositor of accounts consisting of checking, savings, money markets deposit accounts and certificates of deposit (CDs).
MONEY MARKETS-MUTUAL FUNDS: Primary Fund RFIXX shares "broke the buck" Wednesday, falling below $1. Local advisers suggest people review their portfolios and consider funds that are FDIC or SPIC insured.
For more information on their financial portfolios, consumers should contact their financial adviser.
Contact Kati O’Hare via e-mail at katio@montrosepress.com
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