BELOIT — Even though the Federal Reserve cut a key interest rate by a surprising .75 percentage point Tuesday — the largest reduction of its kind in more than 20 years — investors here and around the country continue to brace for a wild ride of stock market fluctuations.

Sarah Starmer of Roscoe, who invests with the help of the Beloit financial-planning firm LifeCircle, said Wednesday that she’s prepared to weather the storm — largely fueled by fears of an economic recession — because she has planned well and doesn’t have unreasonable expectations for her investments.

“Most of the stocks in my portfolio I’ve had in there a long time,” Starmer said. “If it was easy money, then everyone would be jumping on it.”

The rate cut early Tuesday was designed to prevent a major sell-off on American stock markets spooked by steep declines in major markets worldwide.

“That’s pretty substantial,” LifeCircle President Prudence Harker said of the rate cut. “The intent is that it spurs economic growth.”

It also seemed to reassure investors. The Dow Jones industrials closed Tuesday down 128 points, but that loss was much smaller than many feared would occur. Wednesday, the market rebounded with an advance of just under 300 points. Such volatility has been a staple of the market in recent months, and can be particularly unnerving for local investors preparing for an impending retirement.

“Assuming you’re employed, a downturn in the market will not affect your day-to-day life,” said Vince Cimino, a certified financial planner with Cimino & Associates in Clinton.

However, those planning a retirement in the near future will have to weigh their options more carefully.

“It has a big impact on retirees,” Harker said. “This kind of volatility is most difficult for people in retirement.”

For all investors, Cimino recommends a level-headed approach in difficult times, and the counsel of a financial professional.

“We’re apt to take emotions into our finances,” he said. “People are making changes because of the short-term conditions. Review, and don’t rush into drastic decisions.”

Harker agreed.
“The difficult thing would be to get out of the market today, miss the up-tick and be out of the market when it gets back,” she said. “Part of it is time, as well. This market is down, and it will take time for it to come back.”

Prudent planning is key to weathering market storms, the financial advisers said. According to Harker, an important part of careful investment planning is making sure a portfolio is diversified and reflects a level of risk with which an investor is comfortable. Even those with aggressive portfolios full of high-risk growth stocks should consider investing in things that are not affected by market fluctuations, she added.

“The more cash you have, or short-term bonds, that will offset the impact of the growth stock,” she said. “(Cash and short-term bonds) have no correlation to the market. That will reduce your volatility.”

Market declines also offer opportunities for savvy and willing investors.

“For younger investors, these are the times that adding more money to their 401(k) accounts can be fruitful,” Cimino said.

Harker agreed.

“For people with 401(k) plans, they can get more shares for less (when the market is in decline),” she said.

Fears of a global recession, meanwhile, persist, and likely will affect the market for the foreseeable future. While U.S. markets were closed Monday for the Martin Luther King, Jr. holiday, markets in Europe and Asia experienced their steepest losses in a single day since Sept. 11, 2001. The Fed’s rate cut is designed to stimulate the economy and restore flagging consumer confidence, but locally, some business leaders remain concerned.

“I worry that ultimately consumers, whether warranted or not, will be fearful of spending money,” said David Barta, vice president and chief financial officer of Regal Beloit Corp., which is traded on the New York Stock Exchange.

Cimino agreed.

“It’s easy to talk ourselves into a recession,” he said. “It’s a self-fulfilling prophecy.”