Stock Declines Prompt Lifestyle, Portfolio Changes
By Caroline E. Mayer and Claudia Deane
Washington Post Staff Writers
Thursday, July 18, 2002; Page A01
James Oliver can still be found working in his
Northwest Washington office -- even though
the 60-year-old cardiologist had hoped to be
retired and living on San Diego's waterfront
by now.
Elizabeth Medina of Queens, N.Y., shortened
her family's summer vacation from eight days
to four. And instead of taking their two young
daughters to Walt Disney World near
Orlando, Medina and her husband went to
Tampa. "We'd have spent more money in
Disney World," said the 38-year-old online
service specialist.
Meanwhile, retired West Virginia government
employee Frank Tolliver has decided not to
replace some of the equipment on his
300-acre farm. "For a while I was feeling
pretty flush," said Tolliver, who was heavily
invested in technology stocks. Today, he
added, "I certainly have less faith in the stock
market."
The sharp decline of the stock market is
slowly but steadily prompting many investors
to make changes in the way they manage their
money and even how they live from day to
day. For some, plunging share prices have
meant shifting funds from equities to more
conservative bonds and money-market funds. For others, it has meant lifestyle changes.
A Washington Post-ABC News poll shows that nearly four out of 10 Americans said they or
someone in their immediate family has been hurt financially by the recent sharp drop in stock
prices. By contrast, in October 1987 -- just after the Dow Jones industrial average suffered its
biggest one-day percentage drop ever -- only two in 10 respondents said they had been hurt.
And 8 in 10 Americans consider the stock market to be a risky investment; three years ago, only
half of the respondents rated the market as risky.
The poll suggests that higher-income households have become sensitized to the risk that
lower-income Americans have seen in the stock market. Eighteen months ago, only half of those
making more than $50,000 a year said the market was risky. That proportion has now risen to 70
percent, closing in on the 84 percent of lower-income households who see risk in the market.
Despite the increase in investor wariness, most Americans -- 64 percent -- continue to believe that
the stock market "treats individual investors fairly."
The poll also shows that four out of 10 Americans said they are not confident they will have enough
retirement income and assets -- almost double the number a year ago.
Those concerns are prompting many Americans, like D.C. cardiologist Oliver, to delay their
retirement, while some retirees are going back to work.
Consider the 66-year-old Pittsburgh quality-assurance manager who retired from U.S. Steel six
years ago. Yesterday, he began a part-time steel plant job that he hopes will become full time.
The worker, who declined to be named, said the $560,000 lump sum he received in 1996 rose about
$100,000 before the market started to drop. Now, it has "dwindled down to half of what it was"
initially. As a result, he and his wife have reduced by half the $4,000 they had been pulling out of
retirement funds each month.
Still, the steelworker is not giving up on the market. "I think I'm better staying in. You either stay in
forever or get out of it forever."
The stock market reached its high on Jan. 14, 2000, when the Dow Jones industrial average closed
at 11,722.98. It has fluctuated since, with the 52-week high of 10,635.25 posted on March 19.
Yesterday, the Dow closed at 8542.48, gaining 69.37 points in its first up day since July 5.
As the market has dropped, investors have retreated. Since the end of May, U.S. stock mutual funds
have had an outflow of $40 billion, according to Charles Biderman, president of TrimTabs
Investment Research. By contrast, $10 billion was invested in bond funds, $12 billion in retail
money-market funds and $41 billion in bank savings accounts.
Rockville dentist Lawrence Goldbaum, for example, is putting all new savings into cash after
watching his nest egg's value drop more than 50 percent over the past two years. While the stock
market was roaring, Goldbaum used to pause between patients to check his investments online.
Today those breaks are deliberately rare. "It's too unpleasant to keep looking at the money
disappear."
Cardiologist Oliver says he's "afraid to throw money into the market at this point." Instead, he's
putting it into money-market funds, artwork or real estate; he owns two houses and one office
building.
Oliver had been planning to retire last year and had even gone to San Diego to look at real estate.
But when the market "went south in March 2000," he decided to continue his medical practice and
recently began moving savings into money-market funds. He figures his assets have lost about
one-third of their value.
Manhattan advertising consultant Steve Hunter finds himself in the same situation. At 64, Hunter
expected to be reading books, kicking sand and yelling at birds. Instead he is running a business
from his home as he watches his net worth shrink. He calculates that his stock investments have
shed 20 percent of their value.
Hunter and his wife have trimmed their expenses -- eating out less and seeing fewer Broadway
musicals. But they are not going to switch their investment strategy. "I'd hate to make changes right
now," he said. "The trick is to outlast it."
The Post-ABC News poll shows that an increasing number of Americans are investors. Of those
recently surveyed, more than half said they had money invested in stocks or mutual funds, up from
one-third in 1987.
Not surprisingly, the poll shows that those feeling the greatest pain are people ages 45 to 60 in
households earning more than $75,000 a year. Sixty percent of these Americans -- who are in their
peak earning years and thinking about retirement -- said they were hurt by the market's drop. By
contrast, only about 32 percent of those middle-aged Americans making less than $50,000 a year
said they had been hurt.
A total of 1,512 randomly selected adults were interviewed July 11-15 for this survey. Margin of
sampling error for the overall results is plus or minus 3 percentage points.
Driving a lot of the current disillusionment is the continuing rash of corporate scandals and
misdeeds. Phil Smith, general manager of the Carrier Air Conditioning sales staff near Charlotte,
blamed corporate executives' greed for much of the trouble. "As they were trying to bolster their
companies," he said, "they were being a little aggressive, quite a bit actually."
Smith has watched his portfolio shrink from $750,000 before Sept. 11 to about $500,000. But he
said his loss would have been worse if he had not started moving into fixed-income investments in
September.
The 50-year-old still has about $200,000 in a handful of mutual funds, which are "worth about half
what they were." Even so, he still faithfully puts $1,000 a month into his mutual fund investments.
Meanwhile, his retirement may have to be delayed. "I try not to dwell on it," he said. |
