Nurturing Clients In Turbulent Times

In talking directly to individual clients, Cusick is advising them for the time being to increase saving rates, use dollar-cost averaging in investments, reduce debt and look hard at their spending .

"Don't buy it unless you can afford it with savings and/or cash on hand," he is telling them.

Robert J. Kuehl, a certified financial planner and vice president of H.C. Denison Co., Sheboygan, Wisc., believes an important lesson of the current market turmoil is that mutual funds, particularly index funds, are a weak investment.

"It's time to get real" about index funds, he says "They're terrible. The average investor in index funds hasn't done well."

The typical S&P 500 fund over the past 10 years has earned a little over 4% payback annually, and that includes dividends, he observes. Looking back to Jan. 2000, returns on that same type of fund would have averaged a measly 0.13% annually, Kuehl calculates.

"Look at the returns of the last 10 years and you see the average person is much better off paying off the mortgage, car and credit car debt" than putting money in mutual funds, he argues.

The current crisis makes a good case for concentrating on getting out from under credit obligations, he tells clients. Too many have been caught up in refinancing mortgages and otherwise taking on more debt, a trend that financial institutions have been encouraging, Kuehl says.

"The only time a banker is going to advise people to pay off their debt is when they don't have any more money," he observes wryly.

Aside from reducing amounts owed, he's telling boomer clients right now to diversify into certificates of deposits and carefully selected stocks.

Bard Malovany, a certified financial planner with Sagemark Consulting, Vienna, Va., says diversification and active asset management makes sense for most boomers. But investors need to be careful with the asset manager they select during uncertain times, he says. "You want one with a history of recommending significant downside protection in the past," he says

Malovany says to mitigate a client's risk, prudent diversification considers not just stocks and bonds but also a variety of dissimilar asset classes, such as precious metals, managed futures and bonds.

Some mutual funds do very good hedging, and Malovany uses them, along with funds that mix long-term and short-term bonds and that "exhibit low correlation with the stock market," he says.

"People are nervous, particularly about financial services and housing, as well they should be," Malovany notes.

Still, he adds, stocks are not down as far as they fell in 2002, when they dropped 47%. On average, the market has been down 20% 1 out of every 6 years, he observes.

The tanking financial markets won't spell disaster to clients who have followed investment strategies suitable for their age group, these advisors note. Certainly, some boomers who had been hoping to retire soon may have to put that off for another year or so. But if that's the case, chances are they haven't been saving enough anyway, even if the market had remained strong, they point out.