by. Joseph K. Hollak

October 2001 - There’s no question that the terrorist attack on America has introduced a new source of uncertainty into the global economy and the financial markets.  And, it’s understandable that you may be uncertain about what the future might hold. You could take some comfort in the fact that the country and the stock market have faced prior attacks and have, ultimately, come back strong—Pearl Harbor, in 1941; South Korea, in 1950 and Kuwait, in 1990, immediately come to mind. 

Over the next several weeks you will likely see continued volatility in the U.S. stock market as it absorbs the initial shock of the tragedy and our country’s response to it. But, the real danger you may face as an investor isn’t the fall of stock prices; it’s how you personally react to the current environment.

More than ever, you need to keep a clear head.

Different industry sectors will be affected in different ways. The obvious benefactors of this tragedy might well be defense stocks, steel makers and the building industry. Those experiencing major losses include the airline and travel industries, among others. If you’re thinking it’s a good idea to get out of the stock market and put your money into something safe, like a money market fund, you may want to rethink that strategy. This is not the time to make important decisions about your investment portfolio.  A hasty reaction could result in painful, and unnecessary, investment losses.  So, what should you do now? Following are actions you may want to consider during these difficult times and beyond.

Learn to be a better investor. Seek the advice of an experienced financial consultant. Research and understand your investment choices. And, invest in what you know. 

Build stock positions. Depending on your individual financial strength, if you are comfortable with a 12 to 24 month time horizon you may find opportunities in the coming weeks. Unless this market proves to be different, bear markets have seldom lasted more than 18-24 months. 

Hold your bond positions. On September 17, the Federal Reserve lowered interest rates another 50 basis points, which could help lessen the impact of more bonds coming to market to fund the rebuilding efforts.

Make no changes to your retirement, savings or investment portfolio unless these are planned changes already discussed with your financial consultant and tax advisors or a financial emergency. In fact, seek their advice to determine if these plans should be put on hold.

Don’t give up. It’s easy to question your judgment when the market takes a dive. 

Get organized. Review your personal financial and legal situation. Are you prepared to weather a personal crisis such as the death of a spouse, loss of employment, fire or other disaster? Have you prepared a will, power of attorney or arranged for the care of your loved ones? 

It’s important to remember that the case for stocks is based on the market’s long-term performance. Past experience suggests that investors who can keep their courage—and their wits—about them, and stick to a long-term strategy, are most likely to weather volatility and benefit when the market recovers. The important thing is to seek reliable advice, take your time and, react based on your individual situation, not out of fear or emotion. 

Joe Hollak is a financial consultant specializing in investments at Salomon Smith Barney, 121 SW Morrison Street, 16th Floor, Portland, OR 97204   Phone him at 503-221-6680  (toll free 800-452-0966)