Investors in a gloomy mood
Survey finds declining trust in institutions

By HANK EZELL

Cox News Service

October 9, 2005

ATLANTA — For millions of Americans, it's almost time to decide how much life insurance you want, how much health insurance you can afford and what to do about other benefits for 2006.

That's because November is open enrollment month for most large companies — the one time of the year when you can make decisions about many of your benefits.

Recent Hank columns: Prompt filers will receive tax refunds quicker than ever  A new year calls for a new financial plan  Now's the time to assess spending, saving habits  Creditors eager to offer new chance More "Bank on Hank"

American investors were gloomy before Hurricane Katrina, and they've gotten even more depressed since then, a new survey shows.

Investors are losing confidence in financial institutions, the economy and their prospects for a comfortable retirement, says a study from TIAA-CREF.

"Trust is down across the board," said Glen Weiner, director of public research for the giant financial services company. "It reflects the headlines we've been seeing for the past year and even a bit longer.

"Institutions and leaders have been subject to any number of stories that raise questions about the trust people can put in them," he continued.

"It's everything from corporate scandals to the situation in Iraq and, most recently, handling of the disaster in Hurricane Katrina."

All that gloom should not stampede investors into changing their plans or ripping up their portfolios, said Weiner and other financial advisers.

Still, the measures of lost trust are sobering.

Concerning institutions, only 43 percent said their main money managers are "very trustworthy." Big accounting firms got the nod from 12 percent, and financial service companies in general were at 9 percent.

In response, two-thirds of the 1,001 surveyed investors said they had made major changes in their investments. Of those, 62 percent said they've become more cautious in picking investments. Fourteen percent said they dumped an adviser, and 10 percent said they switched to a new money manager. The remainder said they're picking more aggressive investments.

Fifty-one percent said they believe that recent corporate scandals are "just the tip of the iceberg," and very small minorities believe that politicians, the media and corporate executives are "very trustworthy."

Of the economy, a small and shrinking percentage said they are more confident that economic activity is growing. In a post-Katrina follow-up survey, fewer than one in five (18 percent) said they were more confident that the economy is growing. On this and other questions, confidence levels are compared with the results of TIAA-CREF's first survey, a year ago.

When it comes to retirement, one in three said they have lowered expectations for a comfortable retirement.

How should individual investors respond to such a discouraging environment?

Stay cool. "TV news and cable feed this paranoia and this frenzy that the sky is falling," said Debra Trevathan, a certified financial planner in Atlanta. "They're not showing the news, they're showing histrionics."

Her first piece of advice: "Stick with what you know." Panic responses almost always come out wrong, she added. "People start running to oil and gas futures and all this esoteric flotsam and jetsam. They get into things that are not going to do them any good."

Check your allocation. If you've decided that half your portfolio should be in stocks, with the remainder in less volatile investments, this may be a good time to review. Is your portfolio still in balance? Does it still reflect your tolerance for risk?

"We're always taking a long-term approach to investing," said Weiner. "That means not getting off your game plan."

Maximize your saving. Putting away more for the future, especially in tax-favored plans, can help ease anxieties. At least you know you're doing the best you can.

If you have a 401(k) plan at work, make sure you're putting in at least enough to capture any matching contributions from your employer. If you're not putting in the maximum allowed, try to increase your contributions gradually. If you are putting in 6 percent of your salary, for example, try to raise your contribution level 1 percentage point at a time.

Individual retirement accounts are another tax-favored investment opportunity. For detailed information, go to www.irs.gov and download Publication 590. Self-employed people can check out Publication 560 for small-business retirement plans.

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