Taming the tumult

Our view: Latest actions to calm the nation's storm-tossed financial markets shouldn't be cause for the average investor to abandon ship altogether

October 8, 2008

For stressed-out investors, this is not a time for the faint of heart. The Federal Reserve's plan to buy massive amounts of short-term commercial paper is just the latest extraordinary response to jittery investors who have left the financial markets high and dry as Wall Street's woes spill onto Main Street.

Such bold government intervention is meant to allay fears and make it easier for businesses to borrow money. But the negative fallout from the credit crisis seems to have lost little momentum worldwide despite recent government bailouts and the Fed's stabilizing action yesterday.

Surely, many millions of average investors are waking up this morning wondering if today is a good time to pull their money out of the stock market. The Dow Jones industrial average closed at a five-year low, and no one from Fed Chairman Ben S. Bernanke to the latest television stock market guru can guarantee it won't fall much further - or turn around tomorrow.

Is this the moment to panic? No, it is not.

For most ordinary Americans who have investments locked up in 401(k) accounts or some reasonably balanced portfolio and are pursuing a long-term investment strategy, a bear market requires patience, not fearfulness.

Admittedly, as Mr. Bernanke observed today, the "heightened financial turmoil" of late is likely to deepen the current economic recession. That's what happens when people can't get mortgages or car loans or credit lines. But that, too, will not last forever.

On October 19, 1987, the Dow Jones suffered its worst single-day decline. Within about a year and a half, the market had returned to its former value. Those who sold stocks in panic missed out on a double-digit return on investment.

Will that happen now? There are no guarantees, particularly with so much uncertainty still in the market. Certainly, investors would be wise to consult their financial planners and brokers for advice.

But it would be foolish for average people to let a short-term crisis, a lack of liquidity in the financial markets, to drive important long-term decisions regarding their investments. That's a good way to make a bad situation a whole lot worse.