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CHINA'S FALL FELT AROUND THE WORLD EXPERTS ANSWER SOME INVESTMENT QUESTIONS.

Byline: JULIA M. SCOTT

Staff Writer

Buy? Sell? Hold?

Tuesday's stock market fall prompted panicked questions from stockholders concerned about their 401(k) and investments. But before you sell off your entire portfolio and stash your cash under the mattress, three experts answer your questions about what happened and what it all means.

Why do events in China affect me?

"The markets have become really globalized," said Daniel Blake, director of the San Fernando Valley Economic Research Center at California State University, Northridge. Foreign investors own stock in U.S. companies and vice versa. "With that globalization of markets, we become more interdependent." An event overseas, in this case a massive sell-off of Chinese stock, can trigger short term changes in other markets.

What will this do to my 401(k)?

Probably nothing, unless you are going to retire tomorrow, Blake said. People who are looking to draw income from their investments in the short term will lose some appreciation overnight. "But even in a five-year horizon, this may not even affect them unless there is further downward movement."

How bad was the slide?

"I would say this is a very big deal," said Neal Frankle, who manages $85 million at Wealth Resources Group in Woodland Hills. But remember that the stock market has been really strong for the past 18 months. "People have been anticipating a correction and this might be it." One day is not definitive or a trend, he said. "It's definitely a big wake-up call, but I'm not selling tomorrow."

Did the market actually crash?

No, but experts differ on what constitutes a crash. "Typically, a crash, in my view, in my experience, has been a 10 percent drop in one day," Frankle said. The Chinese market, which lost 9 percent of its value, almost crashed, but we did not, he said.

Blake said a crash is when stock values drop between 30 percent and 40 percent, and it doesn't usually happen in one day. Between 2000 and 2002, the market lost about 35 percent of its value. "But it took two years to really grind it out," Blake said. "In '87, the market dropped 23 percent in one day."

Should I sell risk-prone stocks and buy more stable bonds?

"I recommend not doing anything that's emotional-based," Blunt said. Instead, check if the risk level of your investments are aligned with your retirement target. Do you plan to retire Tuesday but are fully invested in highly volatile stocks? It may be time to re-balance how your assets are allocated.

Will I have to retire five years later?

One day is probably not going to make a difference in your portfolio, said Robert Blunt, manager of Charles Schwab's offices in Woodland Hills and Thousand Oaks. That could change if Tuesday's downturn continues and becomes a broad decline.

What should I look for when the market opens today?

Drastic reductions in value and extremely high trading volume can indicate a weak market, Frankle said. "But one day, it's just not enough. If you see two or three of those days ... that would be a sign that maybe there has been a shift."

CAPTION(S):

box, chart

Box:

How did local stocks fare?

Chart:

Turbulent Tuesday

SOURCE: Thomson Financial

Associated Press
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Title Annotation:Business
Publication:Daily News (Los Angeles, CA)
Date:Feb 28, 2007
Words:542
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