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Experts urge investors to stay in the stock market

Monday, September 5, 2011

In one day this week, the main trust fund in the Wisconsin Retirement System lost $1.6 billion.

On Thursday, when the Dow Jones Industrial Average fell more than 500 points, the Retirement System's Core Fund dropped 2 percent to close at $73.6 billion.

That's the bad news. But the good news is that the Core Fund, which pays pensions to more than 150,000 retired public employees, is still up 1.9 percent from a year ago for the period of Jan. 1 to Aug. 4, said Vicki Hearing, spokeswoman for the State of Wisconsin Investment Board which manages the trust funds.

"We think we've done better than the overall market," Hearing said.

To show how quickly the stock market has changed: as of June 30, the end of the state's fiscal year, the core fund was 22.9 percent above the year-ago level, the biggest increase since 1986, she said.

But the market's slide is not a reason for consumers to start selling their stock, several experts said.

"You've got to stay in. You can't turn a paper loss into a real loss," said Brent Lindell, manager of the Madison office for Savant Capital Management.

Lindell said a number of major corporations are reporting big profits and productivity is at a record high. "There's no fundamentally good reason why this happened," he said, calling it "momentum selling hysteria."

Mary Schranz, an economics instructor at Madison Area Technical College, said people should not get shaken by the market's big decline.

"If you were saving and investing, continue to save and invest. If you were planning to buy a dishwasher or house or car, buy the dishwasher or house or car," Schranz said. "It's not totally unexpected that the recovery has its ups and downs."

Brian Hellmer, director of the UW-Madison School of Business' Hawk Center for Investment Analysis, said he thinks concerns about the finances of Italy, Spain and Greece were exacerbated by a loss of confidence in the ability of the U.S. to handle its own debt problems. But chances are (that) the U.S. will avoid another recession and stock prices will be "stable to rising" in the coming weeks, he said.

As for alternatives to stocks, Hellmer said bond yields are very low now while gold and energy futures are quite expensive.

"It's hard to be comfortable thinking that this is a good day to be selling," Hellmer said.