Economic Crisis Live Chat: Q & A

By Nicole Wiseman, NewsOn6.com

Oklahoma Financial expert, Jake Dollarhide, took questions on Monday during a LIVE NewsOn6.com web chat.

Dollarhide is a registered investment advisor with the Oklahoma Department of Securities. He has an undergraduate degree in Finance and a Master of Business Administration from The University of Tulsa.

Dollarhide is co-founder of Longbow Asset Management - a registered investment advisory firm based in Tulsa, Oklahoma.

Contact Mr. Dollarhide at (918) 295-9929.  

NewsOn6.com Q & A from Monday's LIVE web chat:

kotvadmin: Mr. Dollarhide is now available to take questions.

Jim: Do you think we've hit the bottom? If not how low do you see it going?

Jake_Dollarhide: It is quite possible given how the fall over the past two weeks, so extreme and precipitous. Regardless, I believe there are some compelling values in the stock market these days. Who knows, maybe the low on Friday will end up being the bottom?

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gap: I was wondering what you think about the world bank meeting yesterday and Europe's meeting to help with the financial crisis.

gap: Do you think their plan is helpful or harmful?

Jake_Dollarhide: I believe any unified effort at this point is critical. The U.S. can no longer be the only leader in fixing the world's problems plus the problem is further compounded given how our economy is so heavily affected by the global economy. For example, there are many companies, as you probably know, that derive more than half of their revenues from outside the U.S. (like Colgate-Palmolive which derives over 70% of sales overseas).

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Jeremy: Should I keep contributing to my 401(k) or should I just do the company match?

Jake_Dollarhide: Absolutely! There is never an acceptable time to not contribute to a 401(k) especially if there is an employer match which is "free" money. The only decision I would make is how to invest it. If you do not feel comfortable with the stock market, then just leave it in a money market fund.

Jeremy: Where will this $770 billion bailout really go to? Will I see the overall effect benefit my 401k?

Jake_Dollarhide: The bailout is an unfortunate but most likely a highly necessary first step of a multi-step process toward fixing the horrible mess that has been created in our U.S. financial markets and banking system. Greedy executives, bad Wall Street policies and a lack of government regulation are all to blame. It may take 1-3 years to truly see the bailout's positive effects. Ultimately it will help your 401(k) too particularly if you own equity mutual funds.

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Nancy: I have a money market fund with a smith/barney - should I transfer it to a bank?

Jake_Dollarhide: I believe that is an unnecessary move as Smith Barney has $500,000 in SIPC insurance for those money market assets just like a bank would have $100,000 in FDIC insurance. The only reason I would move it is if you can get a better guaranteed or safe investment option at the bank.

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Albert: We have never invested in the stock market before. We are thinking of investing in Fannie Mae and Freddie Mac right now what do you think? Also should people be buying into the stock market at this time in light of the financial climate here in the US?

Jake_Dollarhide: The only reason to invest in the stock market is if you have money that you can stand to put at risk for a 5-10 year period. Any money that you might need to use for big ticket item purchases or other living expenses should not be exposed to the stock market at anytime. That being said, FRE and FNM are popular short-term plays. Their stock prices will eventually go to zero as the government's bailout did not save the common stock holder and those one dollar values will eventually disappear but a lot of people are betting that they go higher in the short term.

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Gholladay: I am 65-years-old with an IRA with Vanguard. It is 35% bonds and 65% stocks and dropping daily. Do I need to change this? Thanks much!

Jake_Dollarhide: The first question to ask yourself is: what are your annual living expenses and how much (after deducting social security, pension income and other sources) do you need annually to need in income from your IRA. Then, take that number and multiply it by at least 5 (representing 5 years) and that is how much money should be in fixed income and cash (outside the stock market).

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rusty: My elderly mother has money in an IRA. I believe most of it is in conservative investments. Is that money safe?

Jake_Dollarhide: Do you mean is it safe if the institution where the funds are held fails? Most likely, yes. Most IRAs are held at brokerage firms which have at least SIPC insurance (broker insurance equivalent to bank FDIC insurance) of $500,000 and many of the leading brokerage firms go ahead and take out excess-SIPC insurance for large amounts above that.

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Nancy: Aren't money market funds safe.....like a checking account or are they affected by the falling markets too?

Jake_Dollarhide: I see no difference in safety between money market funds and checking accounts although checking accounts, but it depends on where the money market fund is held or where it is managed. Some money market fund managers have taken on bigger risks to attract more money and have lost money, but to this point I am not aware of any money market funds that have actually lost money for its clients. Checking accounts, on the other hand, have no risk and in turn usually do not offer any return except in some cases.

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Albert: So are you saying it is best for an investor to wait until FRE FNM until it rebounds from zero before purchasing? That said, if it hits zero, does that mean we have lost the stock if we hold on to our stocks that have no value will they be any good when it rebounds?

Albert: Also how does the financial crisis affect SS Disability benefits?

Jake_Dollarhide: Do you already own FRE and FNM?

Albert: No

Albert: We are looking to buy low and sell high.

Jake_Dollarhide: No, when FRE and FNM go to zero it will mean that those stocks no longer exist. They WILL eventually go to zero and remain worthless forever (at least this time around unless they go public again sometime in the future). What I meant is many investors are buying FRE today at $1.25 and then turning around that same day or the next and selling it at $1.50 for a $0.25 short-term gain. (I do not recommend this strategy unless you can risk losing all of your money in case you do not make a successful trade.)

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trojanmom: Will be closing on my home this month. Buy now or wait 3 months to see what market does? Do you really think the housing market in OK will drop enough and it be a big benefit for me to wait? Sell high, buy Low?

Jake_Dollarhide: Are you buying the home which is closing this month?

trojanmom: No, we are the sellers. But we don't know if we should buy again ASAP or wait.

Jake_Dollarhide: It all depends on your own unique needs and limitations. For example, where will you live in the meantime? If you rent and then buy a few months later then that will be two moves which are extremely hectic and hard on anyone. I do not see rates moving all that much in the next several months although the credit market may improve between now and the end of the year which could mean that you will qualify for more money in January then now (assuming that happens.....or it could be worse.....yes, I am hedging).

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deedle: I'm thinking of investing in Amazon. I started to sign up this weekend on E-trade but didn't complete it. I don't know a lot about the stock market, so I wonder if E-trading is advisable.

Jake_Dollarhide: Do you currently have an active E-Trade account?

deedle: No, I have just invested through IRAs.

Jake_Dollarhide: Are the IRAs at E-Trade and are those accounts where you would buy the AMZN?

deedle: The IRAs are with Fidelty and Vanguard. Those I'm just leaving alone and trying not to cry over my losses . I have some cash that'd I'd be ushing for AMZN.

deedle: Sure. I was going to add that I have about $2,000 to invest.

Jake_Dollarhide: I would suggest to go ahead and open the E-Trade (or Scottrade) account now so whenever the time is right you are ready. As you know, AMZN is seemingly a compelling value like many leading technology names.

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lumartin83: My husband just left his job that has his 401k and went to a new job with no 401(k). What should we do with our 401(k)?

lumartin83: Should we rollover the 401(k)? But into what?

Jake_Dollarhide: I would suggest to go ahead and open the E-Trade (or Scottrade) account now so whenever the time is right you are ready. As you know, AMZN is seemingly a compelling value like many leading technology names.

Jake_Dollarhide: You have two choices (really three, but the third choice to cash out is not a good option): 1) roll it into an IRA-like with Charles Schwab--to keep it tax-deferred and invest in on your own or hire an investment advisor; or 2) leave it at the old employer and it will remain invested tax-deferred as many companies allow former employer to keep their funds invested after they have left.

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madsky101: My husband's job has been suffered through 2 plant closings and we have a disabled child. As much as we hated to, we had to live on his 401(k) money until he found a job. He now has a great paying job and we felt it was time to contribute towards retirement as much as we could. My husband is 51-years-old and works for bnsf railway. With all that is happening we were unsure where we should put our money. We don't have long until retirement, but any suggestions?

Jake_Dollarhide: If you are a few years away from retirement (less than 5 years), I would suggest keeping it conservative and liquid. Focus on money market funds, investment grade fixed income and even cds. However, any of the money that you do not foresee needing to live on or support your child over a 7-to-10 year time frame then that money could be put at risk in the stock market and either buy equity mutual funds and individual stocks, like BNI.

madsky101: thank you

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Linda B: Anything new with helping the Corporate Bond owners at Lehman's? I'm retired and disabled living on Soc. Sec. I have very little left - 70% was invested in Corporate Bonds c Lehman's - anything I need to do now or just wait and see?

Jake_Dollarhide: It is very unfortunate for all Lehman Brothers bond holders that Lehman Brothers was one of the few institutions to be allowed to fail by the federal government (along with Washington Mutual and Indymac). There is no word yet on what Lehman bondholders might recover after bankruptcy proceedings have completed but it will be for much less than par value. I would recommend finding out what the current price for your specific bonds are through your broker and then have a plan for moving forward--either holding on or selling soon depending on where the price is.

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Jim: Earlier you mentioned values, that said what type of mutual fund (large cap, small, foreign, etc) should we be putting our money into? Thanks.

Jake_Dollarhide: If I had $5,000 to put into the market and I wanted to focus on mutual funds, then I would put $500 now into large cap, midcap, small cap, international and energy funds and then set-up a dollar cost average monthly program to put another $500 into those funds over the next 6-12 months.

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Jackie38: I recently left my job and I have a 403b I am afraid with the recent dip in the stock market to roll it over. Should I leave it there and see if things get better?

Jake_Dollarhide: That is always a tough one especially when days like today occur as you do not want to miss a day like today after being down so much. It all depends, but in the end there is no way to know when a good 2-4 week period to liquidate and rollover (as that is how long the process will likely take). Luck will play a part, but just being able to live with your decision no matter what happens.

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mkdolly: I bought 13,390 shares of COPY stock @ 81 cents a share a year ago. Would you suggest me buying more shares of it since it is trading around 55 cents today? Thanks for your advice.

Jake_Dollarhide: If you liked the stock at $0.81 and nothing has changed about the company's competitive position, financial position, and general fundamentals (as well as no wholesale management changes or scandals), then you might be wise to buy more down here in the $0.40-0.50 range. You can certainly buy a whole lot more if you double up here and significantly reduce your overall cost basis.

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BCBCBCBB: Should Tulsan's be concerned that Aubrey McClendon just sold off all 33 million of his shares in Chesapeake? Thanks!

Jake_Dollarhide: I do not believe Mr. McClendon's decision to sell had anything to do with the future of CHK. It is very sad that he was forced to sell all of his holdings as he has been a huge proponent for the company and a big reason why it has had much success (along with former co-founder Tom Ward).

Jake_Dollarhide: It was a margin call and I imagine Aubrey will own much more CHK in the future as he gets his personal finances back in order.

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jean: I have money in several bonds with Federal Home loan Management. All are 10 year or more bonds. Should I leave them there now? We are in our late 60's and use the income from the bonds

Jake_Dollarhide: Do you mean Federal Home Loan Bank, Federal National Mortgage Association, or another one?

jean: They just say Federal Home LN MTG Corp medium term under Government Bonds.

Jake_Dollarhide: I assume we are talking about a government backed agency bond with a AAA-rating. In that case, those are Freddie Mac bonds which were at risk until the federal government bailed them (and Fannie Mae) out several weeks ago. Those bonds might have been down in value by a shocking amount but I would imagine they have recovered almost fully now and should continue to provide you with that monthly, semi-annual or annual (depending on what type it is) income between now and at the point of maturity.

jean: Thank you. That is what my investment banker said, but I wanted a second opinion.

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pat: I am 62-years-old. I just cashed-out my IRA. Do I have a certain amount of time to reinvest before I have to pay taxes?

Jake_Dollarhide: You will owe taxes on that IRA distribution (or cash-out) by April 15, 2009 unless you pay quarterly estimates then you might need to pay some estimated taxes now. But, yes, you can certainly reinvest it either in a taxable brokerage account and if you cashed out less than 60 days ago (and regret having cashed out of the IRA) then you can put all of the proceeds back into the IRA and make yourself whole.

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Jake_Dollarhide: Jake Dollarhide, Chief Executive Officer, Longbow Asset Management, 401 South Boston Avenue, Suite 100, Tulsa, Oklahoma 74103, 295-9929 (O), 557-9868 (M), jakedollarhide@lbamc.com, http://www.lbamc.com/

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kotvadmin: Thanks to everyone who clicked on to NewsOn6.com for this live web chat. Our question/answer session is now ending. Have a great week everyone!