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The bear market is no longer bearable

By HELEN HUNTLEY, Times Staff Writer

© St. Petersburg Times, published July 7, 2002

The stock market can go up back up now. I've capitulated.

The stock market can go up back up now. I've capitulated.

No, I didn't sell the stock funds in my retirement savings accounts. But I did give up on the one I'd been counting on to help pay for my daughter's college education.

When you throw in the towel, market pundits say you've capitulated. Or as my dictionary puts it, you've given up and stopped resisting. When enough of us do just that, we supposedly set the stage for a big stock market rally. So if Friday's gains are an indication of better days ahead, I'll be glad to take credit.

As the bear market has dragged on for more than two years, market realities increasingly have collided with investors' time limits, mine included. My daughter's fund probably will come back one of these days, but she doesn't have much time to wait. Plenty of other investors find themselves in a similar predicament, whether it's college, retirement or some other goal staring them in the face.

At first glance, selling seems to be at odds with the hang-in-there advice delivered each week by me and other financial writers. But sometimes it really is best to cry "uncle."

Your personal time horizon is probably the most important factor to take into account as you decide what to do with your money. The common wisdom, which I believe myself, is that money you're going to need in the next three years doesn't belong in stocks. If you're daring, you can shorten that to two, but if you're really conservative, make that five years.

The reason for this advice is that you don't want to be forced to sell stocks when they're down. If you've got a multi-year cushion, you can wait for the market to come back.

But what happens when the bear market erodes that cushion? The closer you get to your goal, the riskier it becomes to continue riding it out.

My 19-year-old daughter, Suzanne, is a sophomore at the University of Florida. Our family saved for her college education from the time she was a baby. We bought a contract with the Florida Prepaid College Program. We bought a few U.S. savings bonds. We bought bank certificates of deposit. We even bought a zero coupon Treasury bond that would mature just before her freshman year.

And to balance all those conservative investments, we bought shares of the Janus Worldwide Fund. I picked the fund partly because of its track record and partly because I was impressed with the bright woman who manages it, Helen Young Hayes. She struck me as a fine role model for Suzanne -- and she has a great name.

We started our investment with a lump sum in 1994, when Suzanne turned 11. For six years, we added $100 every month, whisked electronically out of our checking account. The first year the fund went nowhere. But between 1995 and 1998, it returned 20 to 26 percent a year. I was thrilled.

Nasdaq took off like a rocket in 1999, and we went along for the ride. Janus Worldwide's return in 1999: a staggering 64 percent. But in the fall of 1999, when Suzanne started her junior year in high school, I started getting nervous.

While the money for her freshman year of college was already safe, I knew I would need to start tapping into the mutual fund money in just three years. Yet I hated to bail out and give up those big returns.

In February 2000, I made three moves. The smart ones: I sold 60 percent of Suzanne's shares at an average price of $85 a share. And I tucked the proceeds safely into two bank CDs paying more than 7 percent interest. The dumb (or at least unlucky) one: I held onto the other 40 percent of her shares, figuring that portion of her savings was money we wouldn't need until her senior year of college, at that time a full 4 1/2 years away.

For two weeks, it looked as though keeping a toehold in the market would give Suzanne's savings a boost. Janus Worldwide climbed to $89.96 a share on March 6, 2000.

Then the Nasdaq boom went bust and the aggressive style that worked so well for Janus funds on the way up cost the fund group's shareholders dearly on the way down. When I sold Suzanne's shares last week, I got $36.79 a share.

There were plenty of opportunities to sell for more money over the past 2 1/2 years, and believe me, I regret that I didn't. I never imagined the stock slump would last so long. Finally, with just two years left in my time horizon, the risk level became too high for me to stomach.

This isn't a bid for sympathy. Although we left a lot of money on the table, our total return, including the shares sold earlier, was still about twice what we invested over the years. And two things prevented this market meltdown from becoming a college fund disaster: Suzanne's investments always were diversified and by paying attention to her time horizon, she had less money at risk as college approached.

Financial planner Ray Ferrara at ProVise Management Group in Clearwater says I'm not alone; even investors with the best-made financial plans are feeling pain in this bear market. It is, after all, the worst since the 1970s, and by some measures, the worst since the Depression.

"It's very hard to plan for these events," he said. "On the other hand, if you always plan for the calamity, you may have a very difficult time keeping up with other concerns we have like inflation."

My retirement funds rode the market down, including my IRA investment in Janus Worldwide Fund, which I still own.

In the meantime, I'm just thankful for Suzanne's Bright Futures scholarship, which makes paying for college easier.

-- Helen Huntley can be reached at huntley@sptimes.com or (727) 893-8230.

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