Local money managers' advice: Don't lose your nerve: Top wealth advisers eye opportunities for investment gains, tax savings in wake of recent Wall Street unrest

October 6, 2008

In a market this topsy-turvy, it's tempting to panic. Few know that better than Indianapolis' top investment managers, whose phones these days are ringing regularly.

Spooked by Wall Street's credit crisis, investors are gloomily contemplating asset-allocation strategies that involve stashing cash under mattresses.

That would be a huge mistake, local experts warn. Even in tough times, every investor can limit losses. And with savvy help, there are gains to be made. But first, perspective is necessary.

"As these events unfold, take a step back and watch. Appreciate it for what it is. History is being made before our eyes," said Mark Green, chief investment officer of locally based Oxford Financial Group Ltd. "It's scary, but it's fascinating, and I for one can't look away. We'll be talking about this for years and years."

Investors' reactions to the Dow Jones industrial average's roller-coaster ride in recent days directly correlated to the tightness of their safety belts. Wealth advisers counseled clients who had well-diversified portfolios to stick with their long-term investment strategies. Now might be a time to make a few tactical adjustments. It's never a good idea to let terror trump reason. "People feel they need to do something," said Ron Rich, president of locally based Capstone Wealth Advisors Inc. "But the vast majority of time, doing nothing is a better choice in an emotional market."

Some investors with highly concentrated holdings were in a worse position. Many attorneys, physicians and executives who once thought they could handle their money alone have changed their minds. Nearly all the financial managers interviewed by IBJ said their most frantic calls have come from prospective customers, not current clients.

The first advice most received: Don't lock in your losses.

"People say they're going to get out at the top and buy at the bottom. That's the best strategy, but it's hard to know when you're there," said Elaine Bedel, president of locally based Bedel Financial Consulting Inc.

"We've always said, don't keep all your eggs in one basket, so you don't miss it if the market takes off in a single day. Don't sell out and stay out unless it's money that should not be at risk."

Like many of her peers, Bedel calmed fears by sending blast e-mails. And events bore out her recommendations. The 777-point drop in the Dow Sept. 29 was followed the next day by a 485-point rise. Investors who cut and ran in haste missed the gain.

That's not to say the experts recommend doing nothing. The extent of repositioning most advise depends on the individual portfolio. But Bedel noted that anyone's capital losses, once booked, can be saved and eventually used to offset taxes on future capital gains.

"How do you make lemonade out of lemons?" she asked. "In this kind of market, it makes sense to harvest some of your losses. Saving taxes is always appealing. It's something of a silver lining."

In the long term, investment managers are bullish that markets will recover. And history bears them out, said Mark Cremonie, senior investment officer in Indianapolis for Evansville-based Old National Wealth Management.

"One of the greatest bull markets in history occurred from 1932 to 1937," he said. "People think they have a high risk tolerance when everything's rosy. But when things get tough, their risk tolerance goes way down."

"We have a saying: 'You should never confuse brains with a bull market,'" he continued. "Bull markets make you think you're smarter than you are, and bear markets make you think you're dumber than you are. People need to think about that."
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