Stock Losses Aren't Always Caused by the Stock Market

Wooster, OHIf there is one segment of the population most hurt by the global economic crisis and stock market losses, it is seniors who may have been duped through imprudent stock market financial advice, and now have incurred stock losses at a time when they are ill-equipped to replace those funds.

Tomorrow, of course may tell a different story. But today, according to figures published in the New York Times the widespread dumping of stock around the globe that has erased an incredible 51 percent of the value of global stock shows no sign of letting up.

That's bad news for everybody—but especially for investors, and notably seniors who have been the victims of bad financial advice. Generally speaking, investors with decades of investment opportunity on their hands can afford to roll the dice a bit, and dip into the riskier investment waters for the chance of a larger return. If it doesn't work, at least you have some peak earning years still ahead to help erase the mistake. You've got some time in the bank, to make up for that lost time.

But seniors don't have that luxury, which is why the honest and prudent advisor will steer seniors into conservative funds that will not risk the principle unduly, if at all. If there is any portion of the nest egg exposed to the swings of the market (and especially now!), that portion is minimal compared with the remainder that languishes cozily in GICs and similar investments that protect the principle and deliver peace of mind, if not stellar performance.

Sadly, that is not the reality for too many.

Take the story of the Ohio couple that appears this month in Kiplinger's Personal Finance Retirement Planning Guide. Ed and Ruthann Wolfe had amassed about $320,000 in Ed's 401(k). That, after 32 years slugging it out at the Rubbermaid plant in Wooster, Ohio. Wolfe was pretty conservative, and had his nest egg invested in low-risk Fidelity mutual funds.

After the Rubbermaid plant was bought out in 1999, early-retirement packages were offered to about 180 employees, including Ed. He was 55 by that time, and the thought of early retirement proved intriguing. Plus, there was a broker running investment seminars hosted by Merrill Lynch who was telling his colleagues that they could earn more money if they retired, than if they remained on the job.

Wolfe told Kiplinger's that he felt participating in such fashion was something he couldn't afford NOT to do, and he promptly turned over his entire retirement nest egg of $320,000 to the broker. Wolfe's instruction was to stay extremely conservative, and retain the funds in low-risk investments. There was the need to start making withdrawals, so they wanted the principle protected.

Based on their instructions, the Wolfes were not concerned when the stock market took a tumble in 2001. At least, not until some of their friends began complaining that THEIR investments had declined in value.

Turns out the broker had ignored Wolfe's implicit instructions to invest conservatively, and instead put their money into high-risk Internet stocks and tech companies. In a little less than two years, their principle had crashed from the initial $320,000 down to less than $100,000. Not only that, the retired couple would have to cease withdrawals immediately, or else they would quickly exhaust what was left.

Wolfe had no choice but to go back to work, driving trucks for two and a half years.

The good news is that he made it back from the brink. He sued Merrill Lynch, as did about 75 of his former Rubbermaid colleagues. His case went to arbitration, and he was awarded $310,000 plus legal expenses. The award put him back on financial track, Wolfe said, but he and his wife will never recover from the emotional trauma of going through that loss.

The unprecedented bear market that is holding the world in its clutches will help to separate the wheat from the chaff when it comes to unscrupulous brokers. And this horrendous market is affecting anybody and everybody who has a portion, or all of their investments in the stock market.

However, bad advice when it comes to stock investing will never go away completely, nor will the propensity for a devious broker to ignore a client's implicit instructions and invest in higher-risk products out of ego, or from the financial greed that comes with knowing there is a pot of commission gold at the end of the investment rainbow.

Experts say that to avoid stock market losses in future, pay particular attention to stock market financial advice that seems too good to be true. Make sure your instructions are clear and concise, and check back to make sure they were followed through. It is not impolite to ask questions, or to call your broker on the carpet for an apparent breach to your wishes. Seniors have a tendency to not want to rock the boat, and will implicitly trust a smooth-talking broker who appears to be their friend. Sometimes those duped seniors will not allow their adult children to intercede on their behalf. Sometimes, those in a position to help, and to steer the estate clear of disaster, don't even know what's going on, until it's too late.

If it is too late, as it is for so many in this horrid market, don't simply accept an error, or outright deceit on the part of a trusted adviser. You're the one who will suffer from stock losses, and bad stock market financial advice.

So fight back.