Q&A: Scared investors get help from financial advice hotline

American families are standing on a financial edge, looking down at the economic crisis and the plunging stock market. No wonder many people are frightened and need some financial hand-holding.

On Monday, many had a chance to ask for help when USA TODAY and the Financial Planning Association held a personal finance hotline. Hundreds of people called in to talk to a planner or sent e-mail questions. No one seemed more worried than retirees and those who are close to retirement.

Some brought up very detailed financial issues, but many consumers just wanted someone to tell them their money is safe, says Patricia Solberg, a financial planner in Seattle.

In a show of how much stress people are under, callers stayed on the phone with planners as long as they could. The chats lasted 10 to 15 minutes, compared with previous years of personal finance hotlines when calls lasted only five minutes.

Even some people who have a personal financial adviser called a hotline FPA planner for more support. It's like people who have a good doctor but still want to call the American Medical Association to get a second opinion, says Al Benelli, a financial planner based in Trooper, Pa.

Having enough money for retirement was clearly the main cause of anxiety. After all, the Wall Street crisis has wiped out $2 trillion of retirement savings, according to a report Tuesday from Congress' top budget analyst.

Even before the meltdown, many Americans knew that they had not been saving enough for their retirement needs.

For most people, retirement is a huge funding worry, says a new FPA study. Of 3,022 adults it polled online this summer, 18% said they waited until age 42 or later to start saving for retirement. The FPA says people find it easy to procrastinate on retirement saving when they're young or when they're paying for children's college educations.

Among all ages of callers, the top question was: Should I sell all of my stock?

Unless the callers said that they need to use some of their money in the next three years, the planners told them to hold tight until the market comes back. Unfortunately, planners said, too many people sell during a stock market slump to jump into safer assets.

"The biggest mistake is that people forget what they have learned. They should buy low and sell high. But they have a tendency to do the opposite," says Benelli. "Greed makes them buy, and fear makes them sell. I think that the biggest value that I bring to my clients is to help them take the emotions out of their decisions."

Pros: If you can stand the pain, stick it out

Hundreds of readers called the USA TODAY and Financial Planning Association personal finance hotline, staffed by FPA planners during their annual conference in Boston on Monday. More than a hundred readers sent in e-mail questions. Here are some of them:

Q: I'm worried about the stock market crash. Is it the beginning of a total meltdown? I'm about seven years out from retirement.

John Bailey, Houston

A: The (down) market is a direct result of the global economy, says Catherine Seeber, a planner in Philadelphia. The plunge in worldwide stocks showed that the credit crisis was spreading. Despite how frightening it feels, it's not a good time to sell everything.

Q: About 75% of my investments are in equities. Since we want to retire in three to five years, I wonder if it is time to get out of the market or stay in and ride it through?

Dave Butash, York, Pa.

A: If you want to retire in three years, you may want to consider moving a portion of your retirement savings into cash, says Al Benelli, a planner who is based in Trooper, Pa. But if you plan to retire in five years, you have more time to recover and you should just hold on. "It's OK to feel fear now," he says. But if you can't sleep at night, you should take some steps to give yourself more comfort.

Q: I'm 48. Should I sell all of my 401(k) stock funds? I have 58% in stock and 42% in fixed income.

Kevin Arnold, Knoxville, Tenn.

A: If you have good job security and you feel OK with that amount of risk, then you seem to be in good shape and you shouldn't make any big changes, says Chuck Johnson, a planner based in Newburyport, Mass.

Q: The market makes us nervous. My wife and I are in our 30s and have diversified our investments. We don't know if we should be worried.

Shaun Fitzpatrick, Detroit

A: Because of your age and diversification, you should just hold onto your investments. Because you invest regularly into your 401(k) plan, you're able to take advantage of the decline in the market, says Patricia Solberg, a planner based in Seattle. You'll buy shares cheaper.

Q:I'm a retired college teacher and my money is in a 403(b) account held by TIAA-CREF, the teachers' retirement and annuity company. How secure is it?

Gilles Labrie, Alma, Mich.

A: Retirement money in a 403(b) fund is not commingled with a company's funds, says Nancy Seely-Butler, a planner based in Groton, Conn. If something happens to TIAA-CREF, an investment company with more than $420 billion in assets, it won't affect your account.

Q: What should I look for when evaluating a municipal bond fund?

Ajit Damleue, Fargo, N.D.

A: Go to Morningstar.com and look for information about different municipal bond funds, says Shawn Jacobson, a planner in based in Bloomington, Minn. Muni bonds are issued by states, cities and municipal authorities and offer interest that's free from federal income tax and sometimes from state and local taxes, too. Normally, muni yields are lower than Treasury bond yields, which makes them a good investment primarily for people in a high tax bracket. If you're willing to take on more risk, you can invest in a high-yield municipal bond fund.

Q:I thought that bond funds were secure. But now I see my bond mutual funds are so volatile. What can you tell me about that?

Rancy Chin, San Francisco

A: A bond is a long-term IOU issued by a corporation, a state or local government, or Uncle Sam. When you buy an individual bond, you earn the right to receive a fixed income payment at set intervals, usually semiannually or quarterly. Bond funds also pay income, usually on a monthly basis, but the amount you receive can fluctuate. That's why most advisers recommend that you diversify your investments. Even if you only have bonds you can have more security if you have different bonds, such as short-term, long-term and global bonds, Seely-Butler says.

Q:I'm invested in a target fund. I'm concerned because I have no choice in how it is managed. How do they work, and should I be concerned?

Sissy Davis, Chattanooga, Tenn.

A: Stay the course, says Bonnie Hughes, a planner based in Miami. Since you have 15 to 20 years before you retire, your investments have time to rebound. Target-date funds invest in a mix of stocks, bonds and money funds. The investment mix becomes more conservative as you move closer to your target retirement date. You don't have to worry about creating your own portfolios and rebalancing.

Q:I've had $1,000 in a real estate investment trust for nine years, and it has barely grown in value. My son is 9 years old. Should I sell the REIT and instead invest in a 529 plan?

David Caldwell, Salt Lake City

A: In order to make a good decision about the REIT, you should provide all of the information about it to a financial planner. If you switch to a college savings plan, keep in mind that you can use any state's 529 plan and later withdraw all the funds, federal tax-free, for college costs. If you start saving when your kids are young, you'll likely amass a sizable sum by the time they start college.

Q: My 529 plan has lost about 30% of its value. One of my children is in college and the other is 16 years old. Should I just hold onto the 529 plan and pay for tuition with cash? Should I re-allocate the 529 plan?

Anna Minogue, Stafford, Va.

A: You should reconsider the allocations in your 529 plan and make sure that they are consistent with the ages of your children, says Katherine Berke, a planner based in Denver. Hopefully you can ride through the downturn. If you're still investing in the 529 plan, you can reduce your risk through dollar-cost-averaging. With that strategy, you invest a small amount of money in the 529 plan each month, instead of all at once.

Q: Is this a good time to buy a home?

Alvin Myers, Atlanta

A: There's a lot to consider, says Rick Mayo, a planner based in Virginia Beach. Will you be living there for 10 years? If you already own a home, can you sell it? Prices have fallen in many spots, so you may find a great deal. And 30-year mortgage rates have been sliding. But it is no longer easy to get a mortgage.