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By Christine Benz | 09-29-2011 12:39 PM

Concrete Coping Strategies for Market Duress

Small equity liquidations can relieve anxiety in a tough market, keeping investors on track in the longer term, says T. Rowe's Christine Fahlund.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. In volatile market environments, pre-retirees and retirees are often among the most nervous. Here to discuss some concrete coping strategies for this group is Christine Fahlund. She is on the phone with me. She is a senior financial planner with T. Rowe Price.

Chris, thanks so much for being here.

Christine Fahlund: Delighted.

Benz: So, Chris, you have come up with a list of things that people who are getting ready to retire or are already retired can do or think about in volatile times like the current ones. Let's talk about some other things that are on the top of your list.

Fahlund: First of all, I think Christine, if you have a financial advisor, this is a great time to be calling that individual because he or she may be able to talk you down off the ledge. Many of us are very anxious these days and talking to a professional as opposed to someone else in your family is the way to go there because their mind is still on the fundamentals as opposed to what the impact is going to be on your personal life.

Benz: Right, and that seems like that's a big part of why you'd paying an advisor for this kind of coaching at times like these?

Fahlund: Absolutely. It may have nothing to do with financial management at that point. It's probably more of an emotional relationship and having that person help you. They certainly understand what you're going through, and they are the right people to call.

Benz: Right. Now how about people who are feeling nervous and feeling inclined to start selling portions of their stock portfolio that have been the most volatile recently. What's your advice to them on that front?

Fahlund: Well, when we have investors call us at T. Rowe Price, one of our primary suggestions is that we acknowledge how worried they are, but at the same time we try to encourage them not to simply liquidate all their stocks at the bottom of the market. You don't want to lock in losses.

So instead, one way to sort of have your cake and eat it to is to start liquidating, say, 5% of your stocks in your portfolio this week and then maybe in a couple of weeks do another 5% if you're still feeling jittery. Eventually, the markets will calm and so will you, and at that point, you can rebalance and get back into the market with the appropriate asset allocation.

Benz: So that approach kind of recognizes that when things are very volatile, sometimes just saying "Stay the course" doesn't really cut it. People want to take some action, but you're point is to not take extreme action.

Fahlund: Exactly.

Benz: So you also have some advice for people who are looking at retiring but aren't yet retired. They are still employed. What's your advice to that group?

Fahlund: Stay in the workforce if you possibly can. This is certainly not an ideal time to get out. It's a lot less stressful for you to go through these volatile times if you still have a paycheck and benefits coming in. So, again, sort of a compromise if you are disappointed that you're going to keep working for a few more years, one thing you could do is to start playing sooner, so you'll still work but start doing some of those activities while you're still working instead of holding off on the trip to Thailand. Go now if you can while you're still working and that might be a nice middle ground for you.

Benz: You've done some work on this topic, Chris, where you've looked at people who are late in their careers and they start spending some of that money that they otherwise would contribute to their plans. That's kind of a nice way to split the difference: to continue working and hold off on social security benefits, but still enjoy some of the fruits of your labors.

Fahlund: Exactly, and we've even given this concept a name. We're calling it Practice Retirement. So you're still working, but you're trying out a lot of things, and that salary and benefits are there to cushion you. Well, you practice and perhaps make a few mistakes now and then, but you're starting to enjoy retirement now, even though you're still working.

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