The Stock Market's Effect On Investors - KCBD NewsChannel 11 Lubbock

1/22/08

The Stock Market's Effect On Investors

After a wild day on Wall Street, the calm in the storm finally came with the closing bell as the Dow Jones average rebounded from a loss of 465 points at the start of the session. Other key indexes also fared much better than expected on the heels of record global sell-offs the last two days.

This comes after two days of volatile trading in overseas markets as exchanges around the world have become concerned about the U.S. Economy. The Federal Reserve stepped in, slashing the Federal Funds rate three quarters of a percentage point, the biggest surprise cut since September 2001.

NewsChannel 11 spoke with a registered financial adviser Tuesday who says if you are a diversified investor, on Wednesday your 401K plan will probably be down three or four percent from where it was the day before. A change he says will benefit some and dramatically hurt others.

"For young people, that's a good thing because the $100 a month you're putting in just got to buy a lot more stock," says Eric McDonald, a registered financial adviser.

Long-term investors may not see immediate problems, but those investing closer to retirement may be at risk.

"That's why it's always important to have a balanced approach and really watch your risk and to rebalance your account," says McDonald.

McDonald says there is no need to quit investing on the stock market.

"My attitude is if you cannot stand to have a three percent move in your equity portfolio then you don't need to be in stocks anyway. If your risk tolerance is that low, then you should not be in equity investments," says McDonald.

As far as the economy goes, the Fed's three quarter point cut stopped a free fall Tuesday, but McDonald says there is still concern about whether the U.S. is in a recession.

"What we're likely to see because Fed lowered rates so much they may lower, again next week when they meet, is CD rates are going to go down. People that are safe investors investing in CDs are now going to earn less on CD rates," says McDonald.

Problems McDonald doesn't expect to go away soon.

"This is not going to be a magic bullet, the Fed cutting rates. This is not going to be a magic bullet to improve overall economy immediately, so I think there is going to be pain in mortgage area unfortunately," says McDonald.

McDonald says traders are already looking ahead to next week when the Federal Reserve Board will meet for their regular session. It's a time when interest rates could be slashed again.

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