By Alan Goldfarb

Americans need a lot of counseling right now — just ask any psychiatrist or bartender. But as much as we could all use a little medicine or liquid optimism, financial counseling may be what we need most of all.

For anyone with a 401k, pension or investment portfolio – and that’s most of us — these are stomach-churning times. Trillions of dollars in wealth already have been lost and each day seems to bring only more market decline. Whenever there is a one-day rally, all gains are wiped out within days, taking with them more hopes and dreams of retirement, college education, travel, new cars and homes, philanthropy, and day-to-day financial needs.

Clearly American investors need a lot of sound, honest advice right now. Many are getting that, but not everyone. Some advisers still aren’t painting an entirely honest picture for their clients. Either they don’t want to create panic or they have self-serving reasons for preaching the stiff-upper-lip sermon. The unvarnished truth is this: The financial tumult the nation is experiencing isn’t like past recessions or market corrections. It’s truly different. We haven’t seen anything like it and we don’t even have a name for it.

This mess began not as a stock market crash, but rather as a credit crash. Its genesis was too much lending to too many unqualified borrowers. Essentially it was defined by excesses, not shortages. And so the nation finds itself in a pickle that will continue to engulf us until credit begins to flow once more. Once it does, the economy will start inching back and the stock market will follow. How long that will be, no one knows.

For those who have money in investments of any size, the time has come to take action. Losses can be reduced and investments redirected. And it’s equally important that investors make sure they are positioned properly for the recovery.

To achieve these goals, everyone should seek the advice of an experienced financial adviser. Don’t be put off by the bags under their eyes: Although many Americans are tossing and turning a bit over their savings, financial advisers are walking the floor at night worrying about the financial health of a lot of people. Meanwhile their own portfolios are in decline.

Under these conditions, everyone needs as much advice as possible. Accepting that this ugly storm won’t pass over quickly, here are a few considerations for those with shrinking investments, pensions and retirement plans:

 Retirees: Unfortunately, retirees are most vulnerable during economic conditions such as these. It is hoped that any retiree has the necessary ready reserves to handle current cash-flow needs. If a well balanced fixed-income portfolio was created before retirement, then returns from bonds, money market funds, annuities, etc., should be sufficient. For older employees not yet retired, portfolios tend to be roughly 40 percent fixed income and 60 percent equities. For retirees, however, fixed income investments may account for up to 70 percent of the portfolio. That has always helped offset stock market declines. Today, however, many of the best fixed-income investments are reducing or eliminating dividends and this is creating unexpected hardships for retirees. Their best option for needed cash flow may be to sell some bonds and CDs. They also should reduce living expenses as much as possible and, perhaps, consider taking a part-time job if available.
 Baby Boomers: For boomers eight to 10 years from retirement, the first step is to re-compute retirement plans based on current valuations. For those whose portfolios have shrunk dramatically, pulling all money out of the stock market isn’t necessarily a wise move. Often a better plan is to take advantage of tax laws that allow deductions for harvesting losses, which then can be used to offset future capital gains. With guidance from professional advisers, boomers with large losses can sell poorly performing stock and then buy a similar security. At the same time, some boomers may want to reduce their living expenses. Many empty-nesters already were doing so, and now they’re glad they did. A final point is this: Some boomers with large losses may have to accept that they can’t retire as early as hoped. Given how long we are living, that isn’t such a bad idea under any economic conditions. After all, if we hope to stay retired for 20 years or more we are going to have to save money as long as we can.
 Generation X: For those in their 30s or 40s, today’s meltdown shouldn’t cause panic; there is plenty of time to recover investment losses. However, younger workers need to learn lessons from what is going on today, the most important being that any investment can fall and fall hard. In the investment world, there are no guarantees, givens or certainties. Yet as history easily shows, there are lots of rewards to reap, and those who reap the most are always those with balanced and diverse investments, including reserves to protect against and take advantage of situations like this.

When times are tough, investors with well-designed portfolios are best positioned to regain losses once the economic worm begins to turn.

###

Alan Goldfarb is director of Financial Strategies for Weaver and Tidwell Financial Advisors Ltd. (www.wtadvisors.com) in Dallas, Texas. A Certified Financial Planning practitioner, Goldfarb has been named Top Financial Advisor by Worth magazine six times. He holds an MBA in economics and management from the University of North Texas and a bachelor’s degree in engineering and management from Fairleigh Dickinson University. He can be reached 972-960-1100.