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Sunday, July 21, 2002 - Page updated at 12:00 AM

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Shifting strategies: Retirement expectations change with bear market

Seattle Times business reporter

When Alice Davis of Seattle left her job as a bank officer in 1999 to take care of her ailing mother in Louisiana, she was living well. The shares of Yahoo! she had bought at $7 were up to more than $120. The savings from her 401(k), once she rolled it over into an IRA, were worth about $68,000. The economy was flying high.

A year later, the market — and her portfolio — began to sour.

"One day I lost $5,000 in the market," she said. "I didn't dare share with my mother (how much I lost), because we would go to the casinos, and if we lost $50, she would be very upset."

Two years later, she's dumped all the tech stocks she once held and is gradually trying to rebuild a retirement portfolio, including the IRA which is down to $12,000.

"I felt just like the market — boom and then bust," Davis said.

That sentiment was echoed by other local investors, who say the wild stock-market ride of the past five years has made them wiser, if not richer.

In many ways, they are returning to conventional investing strategies. No longer do they expect annual 30-plus-percent returns; no longer will they chase the next "hot" stock or think they can outwit or time the market.

They say they are controlling their spending, credit-card debt and health-care costs while turning to conservative investments, such as bonds, money-market funds and real estate.

Tolerating risk


In the ideal world, your time horizon and your goal would determine how much volatility you'd tolerate.

You're not an emotionless robot that doesn't react to volatility, though. You're human. As such, consider how volatility may interfere with you meeting your goal. Then do whatever you can in your portfolio to thwart the factors that lead to volatility. In other words, limit your risk by diversifying across a variety of markets and companies.

Finally, answer these questions to develop your investment philosophy about volatility and risk.

1. How much of a loss can you accept from your portfolio each year?

2. How much of a loss can you accept over a five-year period?

3. How much risk can you accept from your individual investments?

4. How do you plan to diversify your various investment risks (market, company-specific, economic and country)?

5. What risk-related test will an investment have to pass before making it into your portfolio?

— Morningstar.com

Those near retirement may keep working, while some who have retired are looking for part-time jobs and scaling back dreams of a leisurely post-work life.

Many say they are not looking to get out of the stock market, which would make their paper losses permanent, since they expect things to turn around — eventually.

But all say they will look at their investments more closely.

"The biggest mistake I had is I didn't have a fall-back plan," Davis said. "Everyone tells you to diversify and look long-term. What they don't say is have a Plan B."

The walker

When Davis, 53, left for Louisiana, she planned on slower-paced work as a consultant, and retirement in five years. Instead, she has moved back to Seattle and is working full time as director of a small-business resource center. She expects to keep working until age 65.

She figures she won't be able to pay for rising health-care costs even for common age-related illnesses, much less anything catastrophic. So she's resolved to take better care of herself, walking three miles on the weekends and shorter walks during the week.

"It kicked in when I realized I had to start over with my retirement plan," Davis said.

Once invested in a stock fund, Davis now is in a low-risk fund that includes blue-chip stocks, bonds, treasuries and bank CDs. She said the less volatile portfolio allows her to invest "without having a stroke or heart attack."

From luxury to survival

Sherry Wysong, 52, of Woodinville, a former computer analyst, has seen her portfolio, once valued at $500,000, slashed in half.

The most dramatic losses have been in her 401(k). At the advice of a financial adviser, she chose a stock-based mutual fund. While the fund has been declined steadily since 2000, she's only beginning to find the real problem in this fund.

"WorldCom, Enron " she ticks of a list of companies dogged by recent accounting scandals. "I seem to have every one of them. It's like 'Oh my god, what's next?' "

She said she's cut back on spending on clothes and knickknacks and sets aside more in a savings account as a "cushion" from the stock market.

"My visions of retirement have gone down from Mediterranean cruises to just eating." But she assures herself she's got time to rebuild her portfolio.

"Even though it's depressing to lose $40,000 and $50,000 a month, at this point I'm going to hold on and hope for the best."

Burned, but hopeful

Dorothy Runnells, 60, of West Seattle, left her divorce nearly 10 years ago with about $20,000 in investments and few job skills.

She was conservative with her money, putting it in a mutual fund and IRAs. Then she got a job working for a financial adviser. She joined a stock club. She became a little bolder with her investments. Her stock club had made some good money off Enron, selling it at $90 a share.

She bought Enron at $68 and when it plunged further, she just hung on. "I didn't want to pull it out for less than I paid for it. Then all of a sudden it's too late and it was gone."

The stock is now trading for pennies.

Still, she says she hasn't given up on the stock market. She is putting aside about $400 a month into a Roth IRA and a mutual fund.

Keeping the money at home

In the tech boom, Chuck Hauck, 52, a real-estate agent from Edmonds, bought shares in Global Crossing and other telecommunications companies. Global Crossing is now bankrupt.

He has lost about $5,000 and confidence in stock analysts, accountants and corporate officers. Haucksaid he may not invest in the stock market for at least another year or two.

Instead, he will stick with what he knows. "I feel there's more value in real estate. It's more tangible."

Nancy Waddell, 63, of Whidbey Island said she has taken on a new philosophy: spending money on her home, not the stock market.

She's putting a new roof and French doors on the A-frame house she bought in 1996 for about $150,000. When she compares nearby homes selling for $215,000 recently, she said, "That's looking like a good investment."

Relearning negative numbers

John Norton's voice on his answering machine greets callers: "Sorry I can't take your call, but I'm having to relearn negative numbers in order to track my investments."

Norton, 61, of Shoreline, retired six years ago after selling his construction business.

"I have no pension, no retirement income in the sense people who retire from Boeing have a pension," he said. "I basically live off my own investments."

He has talked with a prospective employer about going to work part time and canceled a planned trip to England in favor of buying a new computer.

Two years ago, he might have done both.

"When it falls as much as it has, it forces me to make choices," he said.

One too many crashes

Eastside resident Sandy Voit, 50, has been investing since 13, when his grandfather gave him five shares of AT&T for his bar mitzvah.

He has since built up the portfolio with other stocks and mutual funds and has seen them through minor crashes, major recessions and big rallies. But over the past two years, he's watched his retirement portfolio and the funds earmarked for two daughters' college fund drop dramatically.

With them nearing college age, he has decided to put money in the Washington Guaranteed Education Tuition program, which guarantees to investors that it will pay out future tuition at state universities at the current price, and also provides some tax breaks.

"I want to put that money into something that's not dependent on the stock market," he said.

'The kids can weather this'

As a retired Boeing employee, Janell Gregson, 59, receives a guaranteed pension. What is not guaranteed is her 401(k) account. In the past year, $50,000 has been erased from her account balance. She had chosen technology stocks for the 401(k). She sold them in 2000 to buy Boeing stock, which seemed a bargain. But that was before Sept. 11, when the stock took a hit. Her husband, John Gregson, 61, lost his engineering job at a Boeing contractor in June but found another Boeing position on the East Coast.

She still works part time placing exchange students in host families, and is looking to find other ways to earn money without going back to work full time. She is certain the stock market will be friendlier to her three grown children.

"We got started kind of late," the Redmond resident said. "If we had started 30 or 40 years ago, we'd be in good shape.

"With the kids, they can hold on and weather this, and when they need the money, it will be there for them. We don't have 20 or 30 years to wait for this to go back."

Lowered expectations

Paul Benedetto, 33, of Mulkiteo, a comptroller for a downtown company and part-time financial adviser and private accountant, said he "got caught up in the euphoria" of the dot-com era. "I had some winners, but definitely more losers." He said he's down about 70 percent.

"I'm thinking I'm young enough (to earn it back). I've learned you can't take it at face value."

Now he's taking his own advice: Do more research.

Amy Trask: 206-464-2032 or atrask@seattletimes.com. Seattle Times staff reporter Bobbi Nodell contributed to this report.

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