Image: Kathryn Morrison
Kevin Lamarque  /  Reuters
SunStar Inc. CEO Kathryn Morrison sits in her office in Alexandria, Virginia. Morrison has been shaken awake at night by visions of crashing stock markets and evaporating retirement plans. Wealthy Americans like Morrison were relatively insulated from the global financial crisis until just a few months ago.
updated 10/16/2008 8:41:41 PM ET 2008-10-17T00:41:41

An Oregon couple, their retirement spent traveling, is trimming future vacation plans because their investments are decimated.

A Massachusetts financial planner is reaching out to reassure investors, but has begun questioning her own advice.

A Milwaukee lawyer finds refuge from the stock market turmoil by reminding himself that he’s in it for the long-term.

American investors are shelving hope that Wall Street might soon find its footing. With much of the past decade’s stock-market gains wiped out in a matter of weeks, people with 401(k) plans and other investments are steeling themselves for more of the same and worse — the fear it could take years to rebuild their portfolios as the threat of a painful recession looms.

In interviews across the country Thursday, workers and retirees, ordinary investors and seasoned professionals said they are struggling to respond to the plunging stock market. Many say they are determined not to act rashly. But some, particularly older investors, say the new financial landscape raises the chances of delayed — and less lavish — retirements.

Those who have not retreated from stocks are clinging to the belief that markets will stabilize and eventually recover.

“But it will take a long, long time for it to get back to where it was,” said Neil Rohr, 58, the assistant director of a nonprofit housing agency in Boston, a sentiment echoed by other investors. Rohr said he and his 60-year-old wife may have to think about working longer than the five to seven years they had planned because of the drop in the value of their retirement accounts.

Investors voiced their doubts as Wall Street endured yet another tumultuous day in a month when sharp swings have been the only norm. The Dow Jones industrial average jumped Thursday by 4.7 percent, but only after trading down nearly the same amount earlier in the day. And it followed a stomach-churning day Wednesday in which the Dow plunged 7.9 percent, its biggest percentage drop since October 1987.

Stocks remain well below the levels touched in a euphoric rally on Monday. The fear shaking financial markets has slashed about 36 percent from the Dow since it peaked last October, and 39 percent off the value of the broader Standard & Poors 500.

That is not yet as bad as the stock drop at the beginning of this decade, when the dot-com bubble burst and sent stocks down by 49 percent. Afterward, the S&P took more than four years to recover to its prior level. But many investors said this time around they can imagine a rebound taking even longer.

“I called our financial adviser and said, ’What do I do? I can’t stand watching it go away,”’ said Linda Slater, a retiree from Grants Pass, Ore. The adviser told Slater and her husband, Hal, to hold tight, that economic downturns come and go. But after seeing their investment fall roughly 25 percent even before this month’s dive, she’s not convinced.

Major Market Indices

“It seems like we are going into a depression or something like it,” she said, adding they would be scaling back their travel plans.

The market’s plunge has made even optimists question the time it will take for the market to regain its strength.

“Just hold on. Just wear a seat belt,” said Dan Morse, 54, the lawyer interviewed in Milwaukee Thursday. Although his investments are down 30 percent from a few weeks ago, he can still see the loss as “just on paper.

But, he said, “I think if I were 10 years older, I’d be more worried.”

As markets have become more volatile and stock prices continue to fall, more individual investors are questioning the wisdom long preached by experts to think of stocks as long-term holdings that will weather downturns and inevitably gain value.

Deborah Maloy, a self-employed certified financial planner in Wakefield, Mass., has tried to check in with all 160 of her clients over the past month. The slump in the market has unsettled many of those investors and made her question the worth of her advice.

“Some of my financial planning colleagues and myself, we’ve always had certain things we would say — have a balanced, diversified portfolio, think long-term, and asset allocation. And those words seem almost worthless now,” Maloy said.

Before the market turned, Rita Thuot, the director of a North Carolina agency that works with developmentally disabled adults, had plans to cut back her hours to part-time in five years. Now, she says, that may not happen for 10 years, at which time she’ll be 70.

The balance in her retirement savings plan has withered from $210,000 to $133,000, about $6,000 less than she had contributed since she started saving in the mid-1980s, said Thuot, who was interviewed in Seattle, where she was visiting family.

Thuot said she’s not panicked but is considering talking to people who know more about investing, and possibly reallocating her 401(K) so that if the market tanks again she’ll be better protected.

“I can’t afford for it to hit as hard again,” she said.

The drop in stocks has similarly unsettled John McNair, 58, who runs a business that sells fabrics to outdoor advertising agencies in Portsmouth, N.H. He had hoped to retire at 65, but the hit to his 401(k) could make that difficult.

“If I have to work until I’m 68 to make back what I lost, then I would,” McNair said as he walked through Centennial Olympic Park in downtown Atlanta on his way to a convention.

McNair said he is more worried about how people around him are coping.

“I called my broker to make sure he was not going to jump out the window,” McNair said.

In Pittsford, N.Y., near Rochester, real estate agent Mary Znidarsic-Nicosia, 45, has also called her broker, but she’s the one who needs reassuring.

“I guess I need a little more hand-holding, like, really, just tell me what’s going on,”’ said Znidarsic-Nicosia, the mother of two young boys.

Znidarsic-Nicosia has resisted cashing out or moving money around. Instead, she has redirected new contributions to her retirement account to a broadly based index fund.

But figures show many individual investors panicked and sold even before a record drop in stocks last week and last Monday’s massive, yet short-lived recovery.

The wild swings in the value of the S&P 500 “have terrified the little guy,” TrimTabs Investment Research said in a report earlier this month. In September, investors moved $46 billion out of stock mutual funds, a near-record amount, the company reported.

Many investors, including younger people who were not planning to draw on retirement funds for years to come, say they believe their investments will recover with time. But even some of them have been jarred by the plummet in stocks and the possibility of a lengthy recession.

“Even the people who should know are confused by the magnitude and breadth of it,” said Ryan Moore, 34, a technology worker at a Boston venture capital firm.

Moore considers himself lucky. The majority of his investment are in bonds and other fixed-income options, but the hit to his stock holdings diminished his total portfolio by 20 percent this year.

Still, even some of those spooked by the stock market’s massive downturn couldn’t resist some of this week’s bargain-basement prices.

Elliot Carlsen, a Seattle lawyer who stayed on the sidelines after the stock market bust earlier this decade, picked up three different large-cap stock funds following last week’s decline.

“People take money out and put it into cash,” he said, but it’s temporary. “They will come back.”

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

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