More Investors Seek Advice

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By DAVID PITT -- AP Personal Finance Writer

DES MOINES, Iowa (AP) — There was a clear cry for help. When the markets began going haywire in October, Charles Schwab & Co. saw its customers reaching out for assistance. Recently released data shows plan participants, unnerved by the volatile stock market and talk of recession, sought one-on-one advice — the number of consultations jumped 40 percent from September to October.

"Most employers are stepping up to the plate providing help and advice through financial services providers," said Dean Kohmann, Schwab's vice president of 401(k) plan services. "It's a great opportunity to meet a need when it's needed the most."

The number of transfers to mutual funds perceived as safer, such as stable value or money-market funds, soared more than 50 percent in the September/October time frame compared with the same period a year ago. Still the transfers represented less than 1 percent of total plan assets, Kohmann said. The trend indicates some panic selling, but most people are staying the course.

Schwab has 1.3 million corporate retirement plan participants with about $210 billion in assets. "Most of the 1 percent of assets moving out of securities is emotionally based. It's people locking in their losses," Kohmann said.

For the majority of people selling stock funds, it's the worse thing they could do, he said because they're taking their money out of the market at a low point, and many won't reenter in time to recover some of their losses when the market goes up.

The company's experience reflects broader industry trends. The Investment Company Institute's survey of mutual fund providers indicated stock fund assets fell nearly 21 percent from September to October to about $3.9 trillion. Assets in taxable and municipal bond funds also fell.

While money was flowing out of stock and bond funds, money-market funds saw increases. Taxable money-market funds, for example, grew 4.4 percent.

Schwab's report also shows an increase in the number of people decreasing their 401(k) contributions.

"October was one of the worst in history when about 3 percent of our retirement participants reduced their savings rates," he said. "That's higher than what we've seen in the past, usually its about 1 to 1½ percent a month."

Although some participants took hardship withdrawals in September and October, participants taking loans or hardship withdrawals remained below 1 percent for each month, Kohmann said.

Hersh Shefrin, professor of behavioral finance at Santa Clara University in California, said market volatility trending mostly downward has people scared. When combined with pessimism about the overall economy, people feel the need to take action and that has prompted the sell-off.

"It's like fight or flight," he said. "You feel you're facing a threat and you need to respond to that threat."

Shefrin said many who have been counseled to stay the course through a market downturn fought the impulse to get their money out of stocks but everyone has their own threshold for tolerating market turmoil. There comes a point when the pain becomes so intense, the investor can't deal with it any more.

"What happens is you start to feel regret for not acting earlier and you wind up kicking yourself until emotions get the upper hand and out you go," he said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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