Five speakers at the LAX Coastal Area Chamber of Commerce Marina Affairs Committee meeting October 15th gave advice to attendees at Tony P’s restaurant in Marina del Rey concerning the nation’s current economic situation.
The general consensus among three bank representatives and two financial advisers was to consult a financial adviser, re-evaluate and upgrade the quality of one’s portfolio, have a recovery plan and stay with a stable bank.
Guest speakers were Diane Sullivan, assistant vice president, client manager/L.A. West Premier Banking, Bank of America, Los Angeles; Justin Reese, financial adviser and insurance agent, Bank of America, Marina del Rey; David Eisenberg, assistant vice president and branch manager, Union Bank of California, Marina del Rey; Kathrine Russell, financial adviser, Morgan Stanley, Santa Monica; and Jeff DeLarme, financial adviser, Edward Jones, Westchester.
Two “starter” questions were posed by committee member Jim Fawcett: “Do I need to readjust the yield targets [for those with kids going to or already in college]?” and “Do I need to hold a steady course and stay at the present level or incur more risk?”
Reese said the answers depend on when one needs the money. People should consult a financial planner and determine if they should liquidate assets if they need the money or are close to retirement. If the money isn’t needed for the next four to ten years, hold off and don’t sell, he advised.
Russell agreed with Reese, saying it depends on one’s timetable. She suggested looking at historical returns, equity and what allocations make sense for one’s risk tolerance.
“Now you really know what risk means,” she said, referring to the current economic downturn.
Russell said a financial adviser is needed to help make decisions, look at one’s portfolio and question whether to buy the same today as in early conditions.
DeLarme said that was a good answer but no one can say what will happen, so he recommends sitting down with an adviser, and said that he would be conservative with his clients.
Eisenberg agreed, saying people should ask themselves if they are willing to take a risk. Savings are stable but produce lower returns in the near future. The stage of one’s life and whether one’s goal is long-term or the money is needed sooner are important considerations.
Noting that with the collapse of Washington Mutual and other financial organizations, people have pulled their money out, Fawcett asked Eisenberg about the results of that behavior.
On October 3rd, the Federal Deposit Insurance Corporation (FDIC) increased the insured amount of an individual account for one person from $100,000 to $250,000 per account per person through December 31st next year, Eisenberg noted.
Joint accounts (two or more persons) are insured for $250,000 per co-owner and IRA’s and certain other retirement accounts are insured for $250,000 per owner, according to www.fdic.gov
Eisenberg said people had been bouncing from bank to bank, spooked by the media, causing a run on banks and leaving them susceptible to failure. He recommended staying with a stable bank and looking at the institution’s finances.
Sullivan said that a change was instituted a week prior to October 3rd, where previously naming a beneficiary required a linear relationship (family), but now someone could name ten beneficiaries and get $250,000 insurance per beneficiary, with an equal amount allocated among beneficiaries.
When such accounts are set up, the beneficiary will inherit the entire amount in the account, Sullivan noted, saying, “You might ask, ‘Do I really want all these people inheriting my money?'”
Fawcett asked if someone could get a mortgage if they have money put aside for a real estate deal.
Sullivan said it’s easier to borrow if you have equity, but new buyers will have problems since a 15 percent down payment is required.
Nine months ago, we chose not to work with mortgage brokers and to do the loan ourselves, Sullivan said. If you work with some lenders and there are problems, you don’t work with them anymore, she said.
An inquiry about loan qualifications for small businesses and start-up entrepreneurs prompted Sullivan to say that she doesn’t know if small business loans have tightened up, recommending that individuals check with U.S Small Business Administration (SBA), www.sba.gov/.
The SBA is a guarantor of loans made by private and other institutions and does not offer loans to small businesses.
Reese was asked if a money market fund was covered under the FDIC. No, he said. He added that money market funds can lose, but are expected not to. If you have trouble sleeping, he suggested getting “treasuries” — U.S. Treasury bills, bonds or notes. Information is available at www.trea surydirect.gov/.
A money market fund is a mutual fund (blend of stocks, bonds, other securities) that invests solely in cash or cash-equivalent securities, which are also often referred to as money market instruments. These investments are short-term, very liquid investments with high credit quality, according to www.investo pedia.com/.
A key difference between money market funds and money market accounts is that the former are sponsored by fund companies and carry no guarantee of principal, while the latter are interest-earning savings accounts offered by FDIC-insured financial institutions with limited transaction privileges. In this case, account principal is guaranteed by the FDIC, according to the FDIC Web site.
Russell said it’s important to evaluate priorities and time line and determine what is best for one’s current situation and stage in life — whether one is a retiree who will depend on money for retirement or someone with a long-term goal, children going through school.
“Have a recovery plan, things will get better, know what you want to buy,” said Russell.
DeLarme said it’s best to have a plan and stick with it. People get emotional, but historically, we come out of financial downturns, he said.
Reese said one’s plans should evolve, and need to be prioritized.
Advisers are doing a lot of “handholding” now with clients, Russell noted. “Think quality; regardless of the economy, consumer staples need to be bought,” Russell said. “Look at certain telecoms, be widely diversified.”
For example, if a client’s portfolio years ago included GM, Ford, Enron, and Worldcom, the client thought he was doing well, and now it would be down the toilet, Russell said.
Asked about hedge funds, she said they are a different style, never up as much or down as much in the market, but she cautioned the audience to be careful, that they’re not recommended without good advice.
A hedge fund is a fund that can take both “long” and “short” positions, use arbitrage (the purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy), buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity, according to www.magnum.com/.
Fawcett asked the speakers what their companies are thinking about the economy, given the coming presidential election.
Sullivan said that, historically, with Republicans in office, earning rates go down, and with Democrats rates go up, noting that it happened quickly with President George W. Bush coming into office.
Reese said that it’s a long road ahead, but there are great buys on high quality companies.
Russell estimates that there will be a global GDP (gross domestic product) drop next year. In the U.S. the first half of next year “is still recession, but we may be out in April. The government has not ever stepped in this hard,” Russell said.
DeLarme said, “It’s an up, down and sideways market, and by the time we realize we’re in a recession, we’re on the way out. Focus on what you can control, review quality, balance and stick to your guns.”
Eisenberg said that, in his personal opinion, not that of his company, “We’ve got more to go with so many companies bought out, merged, gone under.” A lot depends on the government plan, job losses, cutbacks, effect on retail and triple effect on earnings, he said.
Fawcett mentioned that “it’s absolutely poetic that we’re meeting in this background,” referring to the bar area of Tony P’s. Owner Tony Palermo responded that people still have to eat and drink and that they have better rates to keep customers coming back.
A question from an attendee focused on the fact that most of the attendees are business owners, and he said he’s not hearing advice to business owners. “We’re on our own.”
Eisenberg said business owners should reevaluate their marketing plan and change with the times. He said he sees many European tourists at the bank right now, and suggested businesses should review how to market their products.
Russell said that the GDP reflects that business around the world has slowed down, asking whether, if things cost more, the price can be passed on.