Meltdown on a Personal Level

Lately, the financial news has been uniformly crappy. When companies run out of customers and cash, they tend to implode. And as economist Noruierl Roubini notes, we're imploding:

The global recession may continue until the end of 2010 as the response by governments to rectify it is “too little, too late,” said Nouriel Roubini, the New York University professor who predicted the financial crisis.

“Governments are falling behind the curve,” Roubini said at the India Today Conclave in New Delhi today. “This recession can end up becoming even worse.” ...

The cratering economy has treated me like everybody else, and I've taken painful hits right in the middle of my retirement funds. As an added treat, I also get to field phone calls from members who are freaking out ...

A week ago, an artist close to retirement called and told me, "I don't know a lot about investing, and my brother talked me into using a broker he said was very good. The man made me money for seven years, but the last nine months, I've lost half my savings. He's got me 100% in stocks, and when I call to ask him to move some of it to bonds, he yells at me to stay with what I've got, that I'll be fine, and stop watching financial news since it gets me upset."

I pointed out to him that the broker works for him, not the other way around, and that it's his money, not the stock jockey's. Also that it was unwise to be totally in stocks when you were on the cusp of retirement. He didn't disagree.

Another member wanted to take her 401(k) money and buy a house. I said that since home prices were still going down, she might want to wait a while on the big purchase.

Tonight I talked to one of my oldest friends, an economist with a PhD from Cornell and a going consulting business. He's been on the President's Economic Council and he keeps up with the policy makers in Washington. He told me the following:

"Anybody who tells you they know where the market is going is full of it. Roubini has been predicting disaster for years, and now he's right, and that makes him the man of the hour. I've got most of my money in cash, sitting on the sidelines. I don't know where the bottom is, and nobody else does either."

"I listened to Geithner, the secretary of the Treasury, on C-Span last night. Listened to him for hours. He does a good job of explaining overall government policy but a bad job of explaining how to rescue the banks. They're trying hard not to nationalize the financial sector, but the marketplace thinks they will nattionalize, so the marketplace has taken bank stocks down to almost zero. There's no confidence."

We're in a fustercluck and I think we're going to be there awhile, but I sure as hell don't have a PhD to back my opinions up. The one thing I do know: artists have got to educate themselves about basic investing so they can make semi-inteligent decisions all by themselves.

What I've told people for freaking yours is, invest at your comfort level. If you freak out over losing momney with stocks, maybe you should be in a money market and maybe a few bonds. It's better to get lower returns and be able to sleep at night. But here's a few basic rules that I'd follow in March, 2009:

If you're in your mid fifties or older, be weighted more to bonds and cash. (60-90%, depending on your intestinal fortitude.)

If you're forty to fifty-five, have a bond/stock split of 50%/50%.

If you're thirty to forty, have a bond/stock split of 40%/60%.

And if you're somebody that just can't take the whipsaws of the stock market, can't stomach it going down, down, DOWN, then keep everything in money market funds, stable value funds, and bonds. You won't get much in the way of returns if the stock market spikes, but you won't be in the bathroom hurling, either.

The thing of it is -- and I write this to give you comfort -- almost everybody has taken it in the shorts. A trustee on the Motion Picture Industry Pension and Health Plans recently told me: "A year ago, the Plan's money managers said something funky was happening with the markets, and the trustees voted to shift investments to more conservative investments -- which was, as it turned out, a good thing to do.

"But I listened to these guys and I didn't do the obvious thing with my persona accounts. I should have gone home to my wife and said: 'Honey, let's move all this stuff to money market funds and C.D.s, wait a year and see what happens.'

But I didn't do it. Even with all the expert advice I was listening to on the Pension Plans, I kept my own investments where they were. Turned out to be a not great thing to do ..."

The point of this long ramble is: Nobody has the final answer. Nobody knows where stocks or bonds will be in a year, nobody can say with certainty if the banks will be solvent. But you can educate yourself, make informed estimates about where the economy is going, and protect yourself with some knowledge. In the end, only you can know what's best for you.

Simply saying: "I'm an artist, I'm no good with numbers, I'll turn my investments over to somebody else" is not a good option. Investment advisors might be smart and well-informed, but their long-term needs and goals probably don't align with yours.

Be the captain of your own ship. Have a "Plan A" at the ready, also a "Plan B", "C", and "D". Because, when you scrape away al the media hoo ha, all the blather from various economic gurus, it comes down to this: your personal future is too important and valuable to subcontract out to somebody else.