Pre-retirees are concerned but they aren’t panicking

Pre-retiree investors may not be enjoying the hair-raising stock market roller coaster, but they aren't screaming to get off either, according to financial advisers.

“Older investors have a little more experience,” said Lee Munson, chief investment officer of Portfolio LLC, an advisory firm with $150 million in assets. “They are a little more manic than usual, but most change their mind before they send that e-mail, and nobody has asked me to go to 25% cash yet.”

Although the sudden stock market plunge has taken a toll on pre-retirees' portfolios, advisers say that the 2008-09 decline serves as a kind of shock inoculation. Over the past three years, advisers have recommended a more conservative investing approach and have kept in closer touch with clients, resulting in their pre-retiree clients being able to tolerate market gyrations better than in the past.

Some clients even manage to joke about the situation, advisers say, even if it is mostly gallows humor.

“I have had a couple of voicemails from investors asking me if I am hiding under the bed,” said Cathy Curtis, president of Curtis Financial Planning.

Of the calls she has gotten, “most are from clients who are less sophisticated, rather than baby boomers,” she said.

ECONOMIC WORRIES

Older clients aren't as worried about their personal portfolios this time around, Ms. Curtis said.

“They are not happy about it, by any means, but instead of their personal portfolios, they are more worried about the general economy and where things are going — and the long-term consequences for everybody,” she said.

Ms. Curtis said that she has been preparing her clients for a market decline with quarterly newsletters and has been conservative in constructing portfolios.

Another reason for this less panicky reaction, advisers said, is that older clients are seeing substantive differences between the present situation and that of 2008, which was triggered by worldwide fears of a liquidity freeze and a banking meltdown. This time, the banking system is awash with liquidity and while the economy may be heading into recession, U.S. companies are reporting strong earnings.

“In 2008, we were talking about the lights going out,” Mr. Munson said. “People could look around and see the problems,” such as low-income neighbors who held huge mortgages on expensive homes, record-breaking oil prices, plunging corporate profits and the failure of companies such as American International Group Inc., the world's largest insurer, and investment banks Lehman Brothers Holdings Inc. and The Bear Stearns Cos. Inc.

The fallout from those years persuaded many advisers to reduce client exposure to stocks so that wide share-price moves have less of an impact on their holdings, he said.

“They were already in a good place,” Mr. Munson said. “If the market is down 6% and I am down 3.5%, we are doing something right.”

This time, investors seem to be more worried about the troubles in the European Union than in the U.S., he said. Still, he joked, “I keep sharp objects out of sight in my office.”

Another valuable lesson is the importance of staying in close touch with high-value clients, who frequently are pre-retirees.

“Five years ago, when something like this happened, advisers had a tendency to hope clients were OK, and they didn't necessarily call,” said Michael Abelson, senior vice president of investments and product management at Genworth Financial Wealth Management Inc. Genworth has sought to make it easier for advisers to communicate with clients by scheduling conference calls with panels of experts to discuss hot topics including the debt ceiling negotiations, the European crisis, consumer spending, and the possibility of an economic slowdown and its potential effect on different asset classes, he said. Typically, several hundred advisers participate in each call.

“The goal is to cover asset categories and develop talking points they can use in follow-up calls to clients,” Mr. Abelson said.

In addition to calling many of her clients, Ms. Curtis, who manages about $21 million in assets, held an open house Friday, inviting clients to stop by or call, no appointment needed, if they wanted to talk more.

“GOLD IS DOING JUST FINE’

Although he has heard from some clients, Peter Tanous, president of Lepercq Lynx Investment Advisory LLC, which manages about $1 billion in client assets, said he isn't getting too many “panicky” calls.

“Our clients are asset-allocation oriented. Their stocks are hurting now but their gold is doing just fine,” he said. “Nothing has happened here that would cause us to make any drastic changes. In fact, we are finding some opportunistic buys in things like high-yield preferreds and master limited partnerships.”

Like many advisers, Lance Roberts, chief strategist at Streettalk Advisors LLC, and a political and financial radio talk show host in Houston, said he reduced equity holdings and increased the cash position of his $420 million in managed assets several months ago. As a result, he said his boomer clients haven't expressed much worry — unlike the anxiety he hears from pre-retirees who manage their own investments.

“They are working on the same rule set they were taught in the "80s and "90s, to put everything in the market,” he said. “It is very tough to re-educate these individuals that this cycle is different. Now, it is about managing risk.”

Pre-retirees who manage their own money are more likely to panic, he said. “A lot are moving completely into cash, buying gold, paying off their houses, doing what you saw individuals do at the end of the Great Depression.”

Joe Kain, president of Sunflower Asset Management Inc., which manages about $13 million in assets, said he has gotten “four or five calls” over the past couple of weeks, but most of his clients aren't panicking. One, in fact, joked that perhaps the only worthwhile investments right now might be “canned goods and ammunition.”

At stressful times in the market, clients rely on their advisers to think clearly, Mr. Kain said.

One client in his early 60s asked to be convinced that it was wrong to go to cash, he said.

“I told him that it's almost always a mistake to sell out when the market dips,” Mr. Kain said.

“Days like these are the days when I earn my money.”

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