Printer-Friendly
Email this Story
Post a Comment (0)
Q&A: Loudoun financial planner dissects Wall Street woes
Many Loudouners have questions about the effects the recent market fluctuations and the government's bailout plan may have on the economy and on their lives.
Financial Planner Kyle Meyer, of Meyer Financial Planning in Lincoln, a member of the National Association of Personal Financial Investors, answered some of those questions and gives his view on the future of our economy.
Q: How is what happened with the stock market related to the mortgage meltdown?
A: Wall Street purchased mortgage loans from banks and mortgage brokers and bundled them to be sold to others as securities. The values of these securities have declined because of the nonperforming mortgage loans and are now referred to as "toxic" securities.
Q: What is to blame for what happened last week?
A: There are many culprits who share the blame. The mortgage brokers who aggressively sold interest-only and subprime loans, the individuals who overextended themselves with debt, the rating agencies who said these new securities were highly rated, the investment firms for not understanding what they owned and the regulators for not establishing a cohesive system of regulation.
Q: What is the government trying to do to help?
A: The government wants to purchase these securities from two financial firms. This does two things, it pumps liquidity into the banks holding these securities, and it enhances trust in the credit market because the toxic securities are off the banks' books.
Q: How does this impact residents in Loudoun County?
A: $700 billion is a lot of money and somebody has to eventually pay for it. In this scheme, that somebody is the U.S. taxpayer. So, if you pay taxes, you are impacted.
Q: Is the economy in a recession?
A: A recession by definition is two successive quarters of negative growth, which we have not experienced. However, to most people, this certainly feels like a recession, and, despite the technical definition, most analysts concur that we are in a recession.
Q: What is your advice to investors right now?
A: The advice is to take a step back and evaluate your overall investment and financial plan. If appropriate and your circumstances have changed, rebalancing your portfolio may make sense. This is not the time to panic and sell everything.
Q: What investments are safe? Is money in banks safe? What about a 401k?
A: Money in banks is FDIC-insured up to $100,000. The federal government last week said it would look at backing up money-market mutual funds. CDs insured by the FDIC, treasury securities and money in money market mutual funds at big companies is safe. The safety of money in a 401k depends on the underlying investments that have been chosen.
Q: How long will this last?
A: The economy is resilient and will eventually recover. Eventually, you will see a return of growth. Perhaps this will be the beginning of seriously looking at our overall debt as a country and as individuals. In the meantime, people can expect continued volatility on the market.
Q: How does this influence gas prices?
A: To the extent it produces a deeper recession and people continue to pull back from purchases and spending, it possibly could help lower gas prices because demand will weaken. This would be temporary, because once demand increases, the price will increase. Another view is that as the dollar loses value, the price of oil will continue to rise [since it is priced in dollars].
Q: What kinds of calls have you been getting in the last week? Are people panicking? What is your advice?
A: People are concerned and yes, panicked. I do think people should assess where they stand, but each situation is unique and does depend on when a person needs the money. For those approaching retirement, it is important to have an appropriate allocation that includes a significant emergency fund [two years of living expenses]. If you have a longer-term horizon, such as 10 years or more, then it may be appropriate to begin investing new money in the market.
Contact the reporter at ecoe@timespapers.com
You must be logged in to post a comment.