Helping readers cope with stock market gyrations

By Flickr user Lyfetime

Major U.S. stock market indicators touched a three-month low Thursday, closing down nearly 4 percent just for the day.  The Dow Jones Industrial Average alone was down 376 points

Pundits and financial journalists were back to uttering the F word – “fear” – to characterize Wall Street sentiment.

You can bet that’s the prevailing emotion on Main Street, too.  Individual investors were feeling heartened by the bull run of 2010 but now markets are down 10 percent from April highs.  And with gesticulating analysts predicting further declines of as much as 20 percent, your readers are no doubt recalculating their retirement plans with every blip on the ticker.

As this Fiat Economics blog points out, worry over European economies — led by concerns over the Greece bail-out – is prompting investors globally to “de-risk” themselves.  Other issues fueling the flight to safety include uncertainty over the consequences of U.S. financial reform, this week’s higher jobless claims, stagnant residential real estate and consumer spending, inflation/deflation questions and other dicey factors of the recovering economy.

Even a huge profit jump for bellwether PC-maker Dell Corp. failed to tame the bears.

Now that we’re officially in market-correction territory, you need to go beyond market analysis and give readers some pointers about what they can do now.

What’s particularly frightening and galling to individuals is that for the past couple of decades, they’ve been soothed during market crises with reminders that “over the long term, the market tends to return about 9 percent a year.”  Don’t be derailed by short-term volatility, they were advised; keep dollar-cost-averaging into the market and your nest egg will swell by retirement age.

Um-hmm.  Today, a number of analysts proclaimed that “Buy-and-hold is dead,” and “Buy-and-hold is a joke.”

Not very heart-warming to the average worker who lacks the time, know-how and inclination to become a market-timer or trader.  But realistically the lack of solid gains over the decade has indeed pulled the rug out from under retirement-savers who have been betting 7-percent-a-year returns (or better, but 7 percent was the financial adviser’s “conservative” figure.)

I’d start with a reader poll or cybersurvey ASAP, to capture the emotion and in some cases the dawning sense of betrayer that small investors may be feeling.  Now’s your chance to capture the contact info of people whose personal investing tales may be worth telling – with the help of expert analysts – as cautionary examples for other readers.

For perspective, here’s some tough talk from Paul Farrell, a MarketWatch columnist who writes about behavioral economics; by his reckoning Wall Street has lost 11 percent of our money over the past decade and further declines are likely.

Ironically, this is all happening just when workers were resuming or beefing up 401(k) contributions, according to this report from Fidelity Investments.

Here are a few personal finance approaches you might take to market meltdown:

Explain the lingo. There’s a lot of chatter these days about “corrections” “technicals,” “fundamentals” and other insider jargon from Wall Street commentators.  A glossary or reader key to the buzz words that tend to crop up when stocks go wild will be a helpful service to your audience.

What’s the alternative? Families who have had it with stocks and stock mutual funds may be willing to accept the lower potential returns of fixed-income funds, bonds and other “safer” investments.  It’s a good time for a primer on bonds (which represent corporate and municipal debt, where stocks represent an ownership stake) and bond funds.  Also be sure to hit money market funds and certificates of deposit; they’re paying abysmally now but are a way for skittish savers to at least preserve capital.  Even the erosion in buying power by ordinary  inflation looks tolerable compared to the erosion on Wall Street.

Talk with financial pros (I like the certified financial planner credential) in your area, as well as analysts at research firms like Morningstar Inc. about the pros and cons of directing long-term savings to bonds.  Ask them to run savings scenarios with time horizons ranging from five to 30 years, to address the concerns of people who may need to tap their money soon and those wondering whether to let it ride.

Better yet, take this opportunity to start a reader Q&A forum or other interactive feature, in which real-life advisers give snapshot advice to reader scenarios you screen in advance.

Pay down the basics. If a family or individual really had decided to stop dollar-cost-averaging (investing a little each month) into the stock market, perhaps they’ll pay down credit cards, retire car loans or whittle away at the mortgage instead with their extra cash.  Maybe even snap up a foreclosure property in lieu of maxing the 401(k) this year. Financial advisers can run scenarios for you that – based on certain assumptions like price appreciation and market performance – will show how an investor’s net worthy may vary over time by redirecting cash and savings.  Just make sure the assumptions are realistic and don’t involve 10-percent annual stock market returns.

Batten down the hatches. One columnist called it the “Swiss Family Robinson” approach.  You use your money to insure the basics like shelter, transportation, even food.  Sure, you might not get to take that Nile cruise you’d planned on in the golden years, or endow a library shelf at your alma mater, but you won’t be homeless, either, if global anarchy strikes.

Survivalism is thriving, as this Houston Chronicle article points out. And not all focus on guns, ammo and cammo – many “prudent pantry” movements and other stockpiling strategists are out there for the Googling; a story about individual tactics –and the businesses that supply them – would make a great counterpoint to the Wall Street explainers.

This post I made earlier in May includes other resources and ideas for covering market corrections.

On a somewhat related note, check out this WSJ story about the SEC investigation into the biggest-ever intraday Dow drop, which took place on May 6. The regulatory agency is contemplating additional circuit-breakers that will stop trading when prices race past certain thresholds.