Life and Money
It's getting pretty cloudy out there, isn't it? And windy. And, well, yes, a bit chilly as well.
And the weather hasn't been so great, either.
But the grayness and the storminess and the chill I'm talking about relates to something more unnerving than simple spring weather.
Your 401(k) account is leaking away.
The value of your house may be declining - probably for the first time ever, for most Portlanders.
And you're feeling maybe just a bit squeamish about your job, as well?
Most of the nation - Portland included - right now is enduring a triple whammy: an economy featuring a mostly declining stock market, a real estate slide that's been waiting to happen for, oh, about 10 years now, and a recession that we're almost certainly already mired in right now (although the economists helpfully won't be able to confirm that for months down the road - maybe about the time your unemployment runs out).
And what's the best possible advice in all of this?
It's exceedingly boring: Don't panic.
Portland's financial planners have been hearing from their clients for months now - their million-dollar clients and their $20,000 clients - and the overwhelming yelp from the masses has been: 'Panic.'
When should I panic? How should I panic? Where should I panic?
Everything in gold? Everything in savings? Everything under my mattress? Canned foods in the basement?
That's when people like Bob Hanington, a Portland-area certified financial planner, must try very hard to talk people down.
The interesting thing, Hanington says, is that when he's managing his own money, 'I react like my clients react - which is emotionally.'
That's a bad thing.
'My advice is don't panic,' Hanington says. 'This too will pass.'
First, regarding your 401(k) (you are contributing the most possible to your employer's 401(k), right? Or are you turning down your employer's offer of thousands of free dollars per year?):
If you're nearing retirement you should have - or should have had - much of your money in bonds and more conservative investments that generally don't dip so badly, or at all, with a dipping stock market.
If you're not nearing retirement, you shouldn't worry. If you've done your homework and feel at least somewhat confident that you've apportioned your money across a range of stocks - or, better yet, put your money into index funds, which buy a large range of stocks to replicate a chunk of the overall stock market - don't even bother looking at that monthly statement. It'll just upset you. And maybe cause you to move around money at the worst possible time.
By the time people believe they have a fix on the trends in the stock market, Hanington says, they're too far behind the trends to be smartly moving around their money.
'So they end up buying high and selling low through their whole life,' he says. 'My job is to curtail that impulse and protect people from that.'
Kathleen Kee, a certified financial planner with Pacific Investment Advisors in Portland, says: 'A slowdown in the business cycle is just a normal part of the capital markets. We just need to weather through the slowdown, and they will be fine long-term. That's something we do know - that markets go up over time.'
So don't be selling stocks that have lost money now - before they make their inevitable recovery.
And your house?
Portland officially moved into negative territory just last week in one study - which showed the average price of a Portland home, in January 2008, had declined from the same month the year before.
First time ever for that study, and the first time in Portland in at least two decades. The decline was less than 1 percent, but it's going to get worse; some predict Portland home values could drop another 15 or 20 percent.
There is a silver lining to that: If you're renting and have been scratching to get into the Portland housing market, you actually might have a shot in a year or so, when prices might have bottomed out.
But most homeowners who don't plan to sell soon should find other things to worry about. You might have made a lot of money in the runup of housing values during the past 15 years; you can't whine too much about giving a bit of that back over the next year or two, Hanington says.
When his clients worry out loud about losing 15 percent of the value of their house, Hanington says, 'I ask them how is that going to hurt you? It'll only hurt you if you're going to sell it. It will only hurt you if you're overextended on your debt.'
But times like these do demand some action, say Hanington, Kee and others.
First, work to pay down your high-interest debt. Then work to establish some sort of savings account - three to six months' living expenses should be your goal.
Easier said than done, yes. But important when jobs might be lost.
Otherwise, just hang on until the clouds part and the winds die down. Because they will.