Investment adviser weighs in on financial crisis
October 13, 2008
In the midst of the global financial crisis of the stock market last week, the Bonanza interviewed Steve Ause, registered principal of the Retirement Specialist, an investment firm in Incline Village.
Nervous, of course. I’ve had a few calls over the last weeks. But unlike most advisers, I haven’t told clients to “stay invested for the long term” and “it will come back,” the usual advice they get. I have had clients on the sidelines since Jan. 16, about 30 percent higher than now. So, for nine months, we’ve been treading water in the money market … but that’s better than drowning. Markets do come back, but we’re still not back to the levels of 2000, and we’re back to summer of 2003 values. So the “long term” is relative.
I just don’t predict. I think Yogi Berra said, “Prediction is very hard, especially about the future.” When the trend turns up, I’ll ease my way back in. I’ll be a bit late, but it’s a good tradeoff for sleeping well. It’s a global problem. The Japanese index lost nearly 10 percent late (last) Monday followed by loses in the UK. It reminds me a bit of the Cuban Missile Crisis. … We didn’t know how close we were to a crisis until many years later. I think things are worse than they want us to know, to avoid a panic. We’ll have to see how much bad debt is still in the system. This month will be critical as coincidentally many Octobers are.
I really don’t like government intervention in free markets, but I think it had to be done.
The government will pay billions and is talking about even more now, originally to own 80 percent of AIG with a high-interest loan. They may make money on the deal since the government pushed a tough bargain. It’s more of a forced investment than a bailout. It’s appalling, though, that AIG is lavishly spending on events even after the bailout. The actual investment portion of their annuities is “away” from the insurance company, managed by professional money managers, and regulated by the SEC, and not subject to creditors’ claims. From everything I read, their investments seem safe. If the insurance company were to go bankrupt, the guarantees might be worthless, but you would likely be no worse off than with a mutual fund which never did have a guarantee. And state and other regulators do require reserves to pay claims that are also protected, so we will see.
But one warning – some investment choices inside an annuity are a part of the insurance company’s general fund, so one must speak to a knowledgeable adviser who can advise them if they are at risk. It’s complicated. I can’t offer general advice.
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As far as the banks, the big fish are gobbling up the smaller fish. That may be good for the clients of the small troubled fish. Yet, it reduces competition.
I won’t give general advice. But you don’t have to take the ride down. You can get off the elevator and catch the next one going up. You don’t have to go to the basement. It may be too late now for that.
Anyway, it’s a day-by-day and client-specific decision. But with these lows, the very high volume, and very high volatility, we are nearer to a bottom than ever before, and we’ve corrected almost 40 percent, similar to 2000 through 2002. One should talk to their adviser about various protection strategies.
But I’m staying on the sidelines as I have since January until we establish an uptrend, and look at investments that don’t move up and down in step with the stock market.