Corporate scandals adding to small savers' anxiety
By Eileen Alt Powell
Associated Press
NEW YORK — Americans who invest in stocks and equity mutual funds for their retirement or their children's education have been taking a beating in the market, and the allegations of accounting irregularities at companies from Enron and Tyco to WorldCom and Xerox are adding to their woes.
There is little evidence that consumers are abandoning 401(k) savings plans or giving up on the stock market, although some are shifting money to bonds and other conservative investments, according to fund managers.
But many small savers say the corporate shenanigans have shaken their confidence in investing.
"The stock market is making me very upset," said Nina Rosinek, a New York textile designer who watched in dismay as the value of her shares in WorldCom plummeted to less than $1. "I think trust has been taken away."
She used to believe that if you did your homework and invested for the long-term, you would be OK.
"Now, when someone says to me 'Buy something,' I'm petrified," she said. "With what has happened, it's not unreasonable to ask, 'After WorldCom, who's next?' "
The disclosures about accounting scams have been unsettling because shares in big corporations are so widely held.
Even worse, they have raised fears among small savers that sharks in the market are taking advantage of unsophisticated investors like themselves who month after month put money into retirement and educational plans.
Dallas Salisbury, chief executive of the Employee Benefit Research Institute in Washington, D.C., does not believe that's the case.
He points out that pension money — while a vast pool of $10.8 trillion — makes up less than 5 percent of all bond holdings and 12 percent of equity holdings. Institutions such as banks and insurance companies along with wealthy individuals are far more exposed.
Salisbury also argues that retirement savers generally are less vulnerable to sharp swings in the market because they are conservative with their money.
Studies show that about one-third of 401(k) participants have 80 percent or more of their assets in equities, Salisbury said. But a third have no stock holdings at all, and the remaining 40 percent are diversified, he said.
"As people have seen their assets decline, they do have some angst," he said. "But as a general matter, are they saying, 'I am done with the equity markets'? No. Most understand that what happens in the market is that things go up and down — but that in the long-term, they will be fine."
Still, some are shifting money amid the market turbulence and corporate disclosures of recent weeks.
Mutual Fund companies Fidelity and T. Rowe Price report investors pulled more money out of equity funds in June than they put in, the reverse of the pattern in previous months.
Still, even savvy investors feel the pain of losing money.
For Carter Hinckley, president of The Fieldstone Co., which provides customer relationship management services in New York, the headlines about corporate malfeasance have been doubly bad. As the owner of a small business, he's sensitive about public attitudes toward the corporate world. And as an investor, he's concerned about his savings.
On the business side, he blames the pressure on big companies for ever-better earnings.
"It's sad that things get carried away to the point where, either through ignorance or conscious effort, companies go over the line," Hinckley said.
Personally, he held "a lot of WorldCom stock" as part of his savings for the education of his two children, aged 2 1/2 and 6 months.
"When you see your savings evaporate, it's frustrating," he said. "But the kids are small and I have time to recover."
Alan E. Peters, a financial planner in Wilmington, Del., believes many investors became overconfident in the boom market of the 1990s and failed to take steps to balance their holdings or use procedures such as "stop loss" orders to protect themselves.
"The investment environment has become very complex, and even the average investor should consider professional advice," Peters said.
He also believes the current corporate scandals could have a positive result.
"I think when we come out the other side, companies are going to be better run than ever before," he said. "The public will have more information than ever before, and corporations will find ways to prove to the public that their earnings are real."
