Return to Transcripts main page

CNN Live Today

Investors Nervous About What to Do Next

Aired July 12, 2002 - 11:36   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: With the stock market tanking and setting several new lows this week, investors are nervous an wondering what to do next, if anything. For some insight and strategies in this tough market, we turn to a friend of this show, financial authority and author Terry Savage. We tracked her down in Chicago. We always know either call Chicago or South Florida and we are going to find you, Terry.

TERRY SAVAGE: It depends on the season.

KAGAN: Good morning. Thanks for being with us.

SAVAGE: Good to be with you, Daryn.

KAGAN: I guess the answer to the question of what to do really depends on what age bracket you're in. There is not one pat answer about what to do.

SAVAGE: Absolutely. Everybody is looking for what is the bottom. Nobody rings a bell. There is no rock bottom in a bear market. It's more like quicksand. And so the answer and advice for everyone is different, depending on your age. If you're young the stock market over the long run has always outperformed any other kind of investment. But if you're getting closer to retirement, now is the time to be more conservative and reassess -- well, it's the really the time to be more conservative a year or two ago, as we talked about that chicken money, money on the sidelines. So that you can ride out the stock investments you do have.

KAGAN: Let's turn to the young people first. Even though you can say, and psychologically, you can look at the charts and all the numbers and say, over the long run, you're better off. Psychologically, it is so hard to put your money in an account that next month is going to be worth less than it is today.

SAVAGE: But, Daryn, that's the exact secret of the stock market. When everybody was throwing money in, it was the most dangerous time, but it was easiest to do it. People thought you were a dummy to have money on the sidelines. You have to be in stocks, and you have to be in tech stocks. That was the top, and bottoms are made by people being afraid to get into the market. So if you've got that the 401(k) plan and you're in your 20s, 30s and you're putting in $300, or $400 a month. You don't have to beat the market, just ride along with the market. It may go down, but 20 years from now, you will look back and say, those were bargain prices.

So you buy the diversified stock funds or the Standard and Poor 500 index fund, or even to be more conservative, the equity income or balance fund, but don't run away from the stock market just at the time when it's scariest. That's the mistake people make.

KAGAN: It is a big mistake. What about some specific stocks, or areas of stocks, that are safe?

SAVAGE: Well, you know, there's no safe area in a bear market. People think the whole market went down. I can tell you, if you look back over the first six months of the year, either in mutual funds or individual stocks, there have been some big winners. For example, gold has been a big winner, gold stocks, and mutual funds that specialize in gold, and real estate investment trusts, real estate companies that pay big dividends. Those have been big winners, from hospital stocks, some of the regional banks, home builders. Those stocks have already moved up. They've been where people are hiding.

Now, maybe if we do have some kind of a real, extended slowdown in the economy, real estate might take a dive, so you might want to be careful there. I put at the bottom of that list, cash, the one thing no one wants. Even my mother said to me, but my money market is only getting .75 percent. Yes, but mom, you have all your money, and these days that counts for a lot. But don't try and beat the market. If you're at the point where you're close to retirement, you need to raise a larger portion of cash.

KAGAN: Especially for the older segment. Don't get too fancy with that.

SAVAGE: And then...

KAGAN: Go ahead, I'm sorry.

SAVAGE: Again, look at your own personal situation, because plenty of older people have a longer term viewpoint than you think. If you are 55, you may want to retire, and may be able to still in 10 years, but you probably are going to live to be 85. So it doesn't mean you want to be out of the market entirely.

KAGAN: Got to be able to survive for the long-term. Some people will listen to your advice about long term and the stock market, and saying, yes, yes, yes, and it's going to make sense, but their gut won't let them go there. What are other places that you can put your money? I am thinking real estate, or a home, or perhaps a second home.

SAVAGE: Well, I want to you be careful there, too. There is nothing wrong with owning your own home, but home prices have been outpacing income at a very rapid rate. If, by chance, this slowdown in the stock market, because the economy has held up pretty well, because now you see people getting scared and they're not buying things. We could have a rollover in real estate prices just as easily as you could buy in stock prices. People are very leveraged in their real estate, 3 percent down, 5 percent down. So don't get overextended. This is a great time to be out of debt. This is great time to have some cash on the sidelines and a money market fund, short term CDs, and then wait and see what happens. Nobody rings a bell and says get back in. You might miss the first couple of months of the upturn, but on the other hand, bear markets like this could last as long as two or three years, not going down, but just going sideways or popping up and down every once and a while. It's hard to trade those markets.

KAGAN: Let someone else to be the first to stick their toe in the water, and figure out the temperature.

SAVAGE: Unless you are investing for the long run, and then I feel very certain that 20 years from now, you will look back and say, remember that horrible frightening time, and look, America went on, because you know, if you look back over history, even 1929 or '73-'74, I was on the trading floor of the options exchange those years. It was very scary. But look back, the market proceed upward over the long run very nicely.

KAGAN: And you are here to tell the story and to guide our way.

SAVAGE: Exactly. Exactly.

KAGAN: And looking good too. Terry Savage in New York. Thanks so much. Have a great weekend.

SAVAGE: Thanks, Daryn.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com