Consumer News And Recalls

BOSTON (WBZ) ― So what does the market free fall mean for our investments?

Certified financial planner David Caruso answers questions from WBZ viewers about what the financial meltdown means for them and what they should do with their investments.

Question 1: Who is doing all the selling on Wall Street when experts say now is NOT the time to sell? –Roger, Provincetown

"The big institutions are doing the selling but it's led by the amount of mutual funds that are being redeemed. By the end of the day, there is a sense of just how many mutual funds are going to get redeemed. Once they're redeemed, that's when the institutions come in.

"The market could be open literally one hour -- the first half hour when they see what they get and the last half hour, which is what we just saw. So that's why all the volatility happens in the last part of the day because the mutual funds and the institutions want to close those trades."

Question 2: My husband and I are 45 years old. We have about a 70/30 split between stocks and short-term investments. We have watched our 401K savings plummet. Should we move the investments even though conventional wisdom says to hold tight? --Danielle, Scituate

"What we've been seeing is the fact that the markets have been crazy. But I've been telling people the one thing you can't do is sell. You can't get out of this thing. You've got to deal with it.

"You are 45 years old, which means you might work another 20 years and hopefully live another 25 after that. So we're talking about a 45-year time frame. If you've got that time frame I think a 70/30 split is pretty good. If you need money before that take a little bit out. But if you feel like you just can't sleep put in a little less. But a 70/30 mix is good for a 45 year old."

Question 3: With the $700 billion package passed and the fed cutting interest rates, why haven't banks cut the interest rates on credit cards? –Lenny, Watertown

"Because they don't have to. Unfortunately people are still using credit – there are a lot out there -- so there's really no reason for them to have to do that.

"When times get difficult the cost of money goes up because it's perceived to have more risk. It's interesting because that's kind of what's going on in the big markets. We've got to have good rates to lend and the fed is lending money at 1.5 percent, but when you look at the international board rate, that's the one that's way higher. So what's going to happen is we have to solve that. Maybe over the weekend, and that could be a good catalyst for the markets next week."

Question 4: I understand when a stock goes down a corporation is losing value. However, when someone loses money on stocks on that company, where exactly does that money go? –Dan, Framingham

"The big sucking sound is in your net worth, unfortunately. When you buy a stock the only time you can actually realize it or get a tax deduction is when you sell it.

"So if you own the stock and it shows up in your net worth -- because in those statements they have to price them every month – when you look at it it's in there. But when you sell it, that's when you show the loss. And you're allowed to net out all your gains and losses at the end of the year. But what it comes down to is you can still take $3,000 in losses depending on how you file."

Question 5: How are all the people whose credit scores have plummeted from foreclosures and credit card difficulties going to be able to rebuild financially once we all get through this crisis? –Deborah, Beverly

"You do have to go back. I did (an Internet) search and put in 'repair credit,' and if you go to Google, I think I got about 300,000 responses. So there are a lot of places out there that you can look at that will help you go through it.

"A couple things are, first of all, if you think you're getting into trouble contact the agency. Another thing is take a look at your credit report to make sure that it's accurate, and you can get those things changed. And finally, if you can't do it yourself, there are professionals who will do it for you. But basically you have to get another credit card, believe it or not, or maybe even a secure credit card that will give you a chance when you have bad credit."

Question 6: Are we officially in a recession yet? – Wayne, Danvers

"We are not. It sure feels like it if you look at the news we are seeing. The definition by the National Bureau of Economic Research is that we have to be down usually two quarters in a row of negative growth. The last quarter of 2007 we were down, but the first two quarters of 2008 have been on the positive side. It could come down. My sense is that we could go into a recession. But officially, we're not there right now."

Question 7: Should I stay put with my retirement funds? –Denise, East Falmouth

"I'd probably want to know more about what your situation is but if you are retired the good news is that even if people retire at 62 they've got the potential to live another 25 years. So if we're looking at what the best thing is I'd want to see what your asset mix is. But here's a quick thing to remember: You want to figure out 'what am I going to need for the next five years.' So whatever that amount is what you want to do is put into something that is absolutely safe so that no matter what happens in the market you can ride it out for five years.

"If you can ride the market out for five years you're going to take away a lot of the risk, and then you can figure out what to do with the rest of it. Again, you're probably going to be in good shape. You should probably stay put, but do some research."

Question 8: How do I protect my 401K? –Ann, Hillsborough, N.H.

"What's happening is we do see more people who get laid off or they do lose jobs. I think the average person today takes about 15 jobs. The one thing you would do is if it's with a good sized mutual fund company you can still call up the mutual fund company and they'll give you information and advice.

"But what a lot of people do is what's called an IRA rollover. What that allows you to do is take it, be in control of it and go to an institution and as a result of that they can help you with the process. "

(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)

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