Taking Stock - Don't panic - markets will stabilize

Dear Mr. Berko: As you know, the stock market is way down, because U.S. treasury bonds were downgraded by Standard & Poor's -- which means the market can go down a lot more.

Before this past week, our Individual Retirement Account (IRA) was worth $343,000, and now it's valued at $301,000. We have 22 stocks - oil and gas pipelines, electric utilities, telephone stocks, exchange-traded funds and business development companies -- that you recommended over the past two years, and they're still with good gains. We have 12 other issues recommended by our broker. And our IRA yields 6.9 percent.

We are scared to death. Please tell us what we should do. Our broker wants us to sell everything and put the money in a variable annuity (VA) that is guaranteed never to lose money and pays 5.5 percent.

We need to do something right away, because we are afraid the market will crash. How could this happen to a great country like ours? We need your advice.

-JS in Oklahoma City

Dear JS: Whoever told you that a VA is guaranteed never to lose money is not being truthful. I suggest you pose the following question to your broker: If I purchase a VA when the Dow is at 12,000 and have to sell it a year or two later when the Dow is at 10,000, will I sell it at a loss?

Before last week's debacle, I finished a column for today's publication in which I suggested that the Dow Jones could fall to the 8,000-level in the coming 12 months. And as I was watching the market plunge, I wondered how it was possible for Ponzi-scheme artist Bernard Madoff to be convicted for swindling $65 billion from investors by the same government that swindled trillions from the American public.

Well, when people begin to recognize that they can vote themselves largess from the public treasury, their collective demand soon reaches a critical mass that throws the equilibrium of their democracy out of balance. Basically that's what's been happening for decades. But on the other hand, just imagine what a wonderful country this could be if all of our legislators were forthright, noble, just, honest and wise.

Casting blame does not solve problems, although we are all to blame. Don't panic, and don't listen to the fear-mongers who ooze from the woodwork with horror stories and then, like lemmings, race madly in line to follow those mongers over the cliffs and into the fjords below. The market will never be as bad as they get in your darkest dreams. Still, this is the end of an era, and the ripple effects may change the future dreams and hopes of hundreds of millions of Americans.

By the same token, the market will never be as good as you can dream it to be. If the U.S. ever had to suffer a downgrade, however, this is the best time for it, because we are now wallowing in the same dirty laundry basket as hundreds of other countries -- so we have plenty of good company. On the plus side, the U.S. has the best and cleanest dirty laundry of them all. So this too shall pass.

Now, if your portfolio contains many of the income stocks I've recommended or similar issues suggested by others, just stay the course. Sell your business development companies, but please keep your other good dividend issues.

It's not the value of your investments that matters; rather it's the income that is paid that is important. If you have $343,000 in dependable dividend issues, such as pipelines, utilities, and telephone shares that have a combined yield of 6.9 percent ($23,000), don't make a single change. If your portfolio declines to $220,000 in value, those dividends are still likely to total $23,000 annually.

Do not allow yourself to be pushed into a VA by a charming, articulate incompetent who will make a sweet 6 to 8 percent commission. As I said earlier, VAs are subject to fluctuations in market value. If you do have a VA, keep it, and do not under any circumstance allow the salesman to move it to another annuity product. If you have cash, keep it in cash.

I think the market could have another 2,000 points on the downside, which will give us some time-honored investment opportunities with attractive dividends to warm the cockles of your bank account. I'll discuss those issues in another column.

Please address your financial to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2011 CREATORS.COM

Published: Thu, Sep 1, 2011