Market Mayhem: Could Stock Plunge Affect Retirement, College Accounts?
Expert says don't change investments because of panic.
May 7, 2010— -- Economic woes in Greece played a part in sending the U.S. stock market on a near 1,000-point plunge on Thursday, sparking a temporary panic by traders.
Sources said a trading error at Citigroup may have led to the abrupt drop Thursday. The market quickly rebounded, closing down about 350 points.
Click HERE to read a full report about the stock market plunge.
People in the financial industry were concerned, but they may not have been the only ones. Those whose retirement savings tied up in the stock market may also have felt moments of anxiety.
But what exactly does the market's volatility mean for the ordinary person's 401(k) retirement or college savings fund?
Mellody Hobson, president of Ariel Investments and "Good Morning America's" personal financial contributor, appeared on the show to put the market's wild ride into perspective.
She acknowledged that investors are nervous, but advised people not to make any big changes to their investments because of Thursday's events.
Hobson said she doesn't believe in reacting to the market, saying people should have an asset allocation plan based on long-term goals. Anyone who is thinking of changing that plan based on what happened Thursday would be making a mistake, she said.
Stock Market Has Fallen, Rebounded Before
She pointed to other historic plunges in the stock market: Black Monday in 1987, after the Sept. 11 terror attacks, the meltdown in 2008 following the banking crisis. In each instance, the market rebounded, she said.
The Dow Jones Industrial Average plunged more than 990 points Thursday, before ultimately closing at 10,520.32, or 348 points down from the previous day's close.
Hobson said that 401(k) accounts may see a temporary drop as a result of Thursday's volatility, but she noted that most of those accounts have stabilized. If account-holders did not make major changes to their 401(k)s in the past year, then their balances should be around pre-2008 crisis levels.
Stocks have been falling since Monday as investors continue to worry that European efforts to prop up Greece's failing economy won't be enough and that the country's financial woes could reverberate around the globe.
Hobson: Greece's Economic Worries Won't Hurt American Companies
But Hobson downplayed the possibility that Wall Street's jitters over Greece could cause significant problems for the American economy.
She said she attended a recent investment conference, and when attendees there were asked who had invested in Greece, she said no one raised a hand to indicate they had.
While Greece's problems are significant, Hobson said they will primarily affect the Greek economy and that U.S. companies would not be hurt.
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