With U.S. policy makers grappling with the debt crisis and the S&P downgrade shaking global markets, a new sense of panic has enveloped smaller investors who sense the eerie similarities between today and the dark days leading up to the 2008 recession.
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Despite the volatility and global economic uncertainty of the past few weeks, however, financial advisors remain adamant in their advice in post-downgraded America that there is no need to panic and start incurring losses through high-emotion sells.
A lot of people were too aggressive going into 2008, people sold at the bottom then things recovered and they bought back in, said Jordan Goodman, author of "Fast Profits in High Times."
Now, they are taking another hit, he said.
The d�j� vu is derived from a sour mixture of emotion, fear and greed, according to Goodman.
The reaction in the markets is fear, its emotionally driven, said financial advisor Rebecca Hall, who serves as managing director of Rebecca Hall & Associates, a private wealth advisory practice of Ameriprise Financial.
While players of all ages may be scrambling to reshuffle their portfolios in response to the market turmoil, advisors say the rules of the trade remain true in that younger investors should be looking for buys and older ones searching for stability.
After all, players in the early stages have plenty of time to recoup losses and should be scouring for bargains, according to Hall, while those nearing retirement must act conservatively given their thinning financial timeline.
For those that have just entered the job market, the time to invest is now.
They should be looking at this as a buying opportunity, Hall said.
It is important younger investors put their cash into riskier investments so portfolios have a greater opportunity to grow over the long run and rebound from any losses incurred during times of market volatility, such as these.
While GDP is growing at a paltry 1% or so, Hall noted that economic fundamentals generally continue to improve from a year ago, when investors were eager to buy.
Younger investors should take extra money and load up on equities, she said. Its kind of like the market is on sale.
Even buying stocks in giants such as Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX) will help those investors in the long-run, according to Goodman, as the high-growth companies, while expensive and volatile now, will likely see strong gains over time.
If you have the time for things to work out you can be more aggressive, he said. For long-term growth, they want to have money in aggressive [assets] that are going to be volatile but in the long-run are going to do better.
Goodmans advice is to start small, but use time as an advantage by scooping up riskier investments. Younger investors should also be enrolling in 401k programs if offered by their company and taking advantage of company benefits like stock purchase plans, he said.
If stocks are too expensive on an entry-level salary, try mutual funds and gold, according to Goodman.
If they dont need the money coming they should be sticking to their plans, Goodman said. If youre young and you have enough income to cover expenses, buy more when its down.
The middle-aged investors who have been in the job market for some time should be sticking to their plans, too, despite the economic uncertainty.
Still two to three decades out of retirement, those players should keep up their risk appetite and use dollar-cost averaging strategies, while starting to allocate money from riskier stocks to bond safe havens in an effort to be more conservative amid a smaller investment timeline.
Investors should still be relatively aggressive, as they have several years before they need the money in retirement, and Goodman suggested they dont flee to money markets, where they are guaranteed a 0% rate of return.
They should not get shaken from their long-term view based on whats happening here, Goodman said. Buy good quality stuff while its down and in the long run youll do well.
For those middle-aged investors who remain unemployed, Hall warned they should not be digging into savings even with the high desire right now to buy, not only because of the economic uncertainty and high risk, but also because volatile markets require much larger-than-usual cash reserves to cover losses.
Were looking at swings of 100 points in both directions, Hall said. You risk having the market move against you in a very short period of time. Sit tight.
If unemployed investors already have cash tied to the market, Hall suggested they gradually move funds over to something fairly conservative.
Retirement: Before and After
Someone considered close to retirement is still five to 10 years out. At this point, Hall says it is too late to adjust the risk in the portfolio as losses will have only a very short time to rebound.
Few clients in that pre- and post-retirement age can't afford that risk, so downside protection is important, she said. Yes their portfolios are going down but they know they have money they need for at least 18 months to two years.
Investors should keep invested money where it is and place new cash into conservative assets, she said. All investors should have a broad-based asset allocation, but for those nearing retirement, a close eye on retirement plans is imperative.
Even in this age group, however, Goodman suggests investors avoid money markets, as it is imperative in this critical time that money continues to grow.
They should be trimming back their risks to some extent, if you need money relatively soon you shouldnt be taking extra risks, because it could take a while for the economy to turn, Goodman said. Dont go to cash, but definitely be more conservative.
For those well into retirement, their investment strategies should not vary from the usual even with mounting recession fears. If anything, they should be gradually pulling money from their portfolio on an as-needed basis.
You dont have to sell out in this market to get the money you need, Hall said. If your portfolio drops lower, may need a pay cut.
Goodman suggested retirees invest in safe, higher-yielding vehicles such as preferred stocks, convertible bonds, master limited partnerships and overseas bond funds so that their money continues to grow, albeit slowly and cautiously.
The big mistake theyre making is keeping cash and losing to inflation, Goodman said.