Is the worst over?

Financial planners faced 18 months of tough questions as their clients watched portfolios dive before they slowly began to rebound.

People wondered why the financial crisis happened, when it would end, what they should do and whether the country financially stable.

Roland Manarin of Manarin Investment Counsel Ltd. in Omaha described clients' feelings as no less than terror.

“The terror they felt about the world collapsing and the dollar totally collapsing. Our answer? Hang in there, when this is over, America will survive and do well.”

Like Manarin, many financial experts told clients to carefully review their options and avoid panic. Others say the worst might not be over yet.

Todd Feltz of Feltz WealthPlan said investors understand that risk always is part of the system. But this time, there was no place to hide.

“It didn't matter if you went to cash or stayed in stocks and bonds,” Feltz said, “everyone was a loser.”

People who converted their investments to cash but didn't get back into the markets suffered still more, he said.

“People who didn't stick it out never experienced the climb back up.”

Aron Huddleston, vice president and portfolio manager at Manarin Investment Counsel, said clients were especially worried about their retirement nest eggs, as the Dow dropped more than 50 percent from a record 14,164 in October 2007 to a low of 6,547 in March 2009.

By October 2009, the Dow had risen into the 10,000-range. It has remained there, but it could be years before it returns to its previous highs.

“People have to step back and re-evaluate their plans — will they have to spend less, work longer, get a part-time job?” Huddleston said. “Especially retirees or pre-retirees, they have to evaluate their portfolios.”

The recession that began in December 2007 technically ended in the third quarter with positive growth in gross domestic product, but hard times remain. Unemployment declined slightly last month, but the national rate was still 10 percent.

Russ Kaplan of Kaplan Investments said that in the past year he has spent a lot of time on the telephone with clients, seeking to reassure them.

Some were concerned about the markets, Kaplan said, and others were worried about fraud, such as that perpetrated by New York investment manager Bernie Madoff. Madoff pleaded guilty in March to defrauding thousands of investors in a $65 billion Ponzi scheme.

“You had to pretty much show people your credentials this year,” Kaplan said.

The financial crisis created a “lot of panic, a lot of handholding, a lot of trying to talk people into not liquidating,” Kaplan said.

Of about 75 clients, only two cashed out, he said. “It was mostly steady-as-you-go.”

Now people are glad that they stayed, although there could be drops in the market going forward, Kaplan said.

“It's never going to go up this far without a 10 percent correction,” Kaplan said. “When, nobody knows, but we'll probably have one pretty soon.”

As to how regulators could have missed the problems in the financial system and how banks could have made such bad investment decisions, Kaplan said he didn't have any good answers. “I don't think anybody did.”

Ron Carson of Carson Wealth Management Group said he expects the economy to remain rocky through 2010 and perhaps fall into another recession. Carson expects another dramatic drop in the stock market, perhaps to new lows.

A common question among clients is whether the U.S. government can borrow its way to prosperity as it props up the economy, Carson said.

It can't, he said, and existing debt in residential and commercial real estate and private equity firms tips the odds heavily in favor of a short-lived recovery followed by a second recession.

“This time next year we will be well into our double-dip recession,” said Carson, who warned in 2006 that the economy was struggling, before the recession began in December 2007.

“It will start this summer and be official in the third or fourth quarter next year,” Carson said of the second drop in a double-dip recession.

“People have some time to prepare for this. The market may react sooner than later.”

Carson suggested that people put money into inflation-protected U.S. Treasury bonds and wait for the next market dip before investing for the long term in exchange-traded funds with holdings in communications technology, agriculture, oil and gold.

Greg Rutherford at Tagge Rutherford Financial Group was more optimistic, although he said high unemployment is problematic.

Tagge Rutherford is telling clients that the stock market will continue to recover. Company earnings reports have improved, global growth has resumed, and U.S. banks and the housing market appear to have stabilized, Rutherford said.

“I don't think anybody saw how hard it would be,” he said. “When you saw talk of nationalization of banks, I don't think anybody saw that coming.”

If people invest in areas like technology, emerging economies such as China and Brazil, commodities and coal, they should see good returns two to three years from now, even if the markets don't quickly return to their previous highs, Rutherford said.

Feltz said he tells clients that the stock market is a leading indicator of a recovering economy. He expects it to hold onto gains because people with cash on the sidelines continue to look for investments.

Another help: Companies that have cut costs will start spending again on things such as computer upgrades, Feltz said.

Manarin said the stock market should stay strong at least through 2010. Investors should consider buying stock in good companies or using cash to buy real estate at prices that have been driven down by the lack of available credit, he said.

Traditionally safe investment vehicles such as bonds, certificates of deposit and U.S. Treasuries lose value to inflation, Manarin said.

“To build or maintain wealth you have to be an owner,” he said. “Guaranteed bonds, CDs, Treasuries — these are illusions of safety.”

Gold has risen to record prices and consequently has received a lot of attention, Manarin said. Gold can be used to protect against inflation and geopolitical instability, but its price can be volatile, so it shouldn't be used in a speculative way to make money, Manarin said.

“It will go down,” Manarin said of gold, whose value has risen about 50 percent in the past year. “We don't know when because it's the dog chasing its tail.”

The world is likely to muddle through the economic crisis, but financial minefields remain, Manarin said, including trillions of dollars in derivatives. It took only a small amount of those exotic securities to contribute to the worst financial crisis since the Great Depression, he said.

Derivatives, which obtain their value from underlying assets, often are used to hedge risk and can be difficult to price.

“If there's something to really worry about, that's it,” Manarin said. “If we're not careful, the whole show could blow up very easily.”

Contact the writer:

444-1117, joe.ruff@owh.com

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