EL SEGUNDO, Calif.-In the wake of last week's economic turmoil, credit unions still are able to offer investment services to their members, Bruce Young believes, as long as communication is clear.
Young, a Certified Financial Planner for financial education provider Financial Finesse here, told Credit Union Journal the early reaction to all of the flux last week has been a "pleasant surprise."
Two executives with CUNA Mutual Group, meanwhile, said investment services remain viable at credit unions even as many are predicting a surge in deposits seeking a safe harbor. Indeed, they argue the current economic environment is a "good entry point" for people to get into the markets.
"No one is happy with what went on with the whole debt crisis in Washington, but mostly people expected the market to tank," said Young. "They aren't happy, but they realize they don't need the money right now. From a financial educator's standpoint, I like it. People are starting to 'get' the market. They understand if they are in the market and taking that risk, this type of thing is going to happen. The market is going to do what the market is going to do, and you just have to plan accordingly."
With many stocks possibly undervalued in the wake of the recent sell-off, Young said, there is a "unique opportunity" to look for what investments might be "for sale." This means CUs can leverage investment services, as long as the advisors communicate to members the importance of a long-term philosophy.
An important concept for credit unions to pass along, he continued, is "know thyself." If someone is not sleeping at night over the market's wild gyrations, he/she should not be in stocks in the first place.
"Many people want to save more for retirement, so investing in an IRA or an outside brokerage firm is an opportunity. An old saying is, 'there is never a bad time to save more.' It is not going to hurt you. This is a good time to buy, while things are on sale, so it might be time to bump up contributions to retirement planning."
'People Emotional'
Meanwhile, Scott Powell, managing director-general account, and Mark Warshauer, VP-asset accumulation marketing at CUNA Mutual Group, said CU members have remained relatively calm as the market experienced 500-point swings on consecutive days last week.
"One of the things investment services does is provide practical advice to members," Warshauer said. "In times like this people get very emotional and they could use some guidance."
According to Powell, CUNA Mutual's investment advisors, many of whom are located in credit union offices, have been "preaching our continued message" of focusing on long-term objectives, being extremely diversified including fixed annuities, and some disciplined rebalancing.
"We are advising people to get over the emotion of the moment and buy low and sell high, as they say," Powell explained. "Many people chose not to rebalance in 2008-09 because they didn't want to put money into a falling market, but then equities were up 100% over the next two years."
For Warshauer, the reaction to the downgrade and subsequent market tumult depends largely on the member and the relationship he/she has with the advisors.
"But I think in general credit union members tend not to overreact. If the advisor has done a good job, they will stay the course and I think they are still doing that now.
"Several advisors have said calls are up, but mostly people need a little hand-holding. They want to talk to the advisor and discuss what is happening. Our advisors are telling people if they sell right now they are locking in at a loss. With rates as low as they are, there are not a lot of places to put their money."
The difference between 2008 and 2011, according to Powell, is despite worrisome macroeconomic headwinds such as the U.S. and European debt situations, corporations are "much healthier" today. He said CUNA Mutual is advising people with the "right" time horizon, five-plus years, and a "reasonable" risk tolerance, "this is a good entry point for new investments."
"We don't expect that to change materially, at least at this point. The fundamentals are sound. If this keeps up, if consumers stop spending and there is a major retrenchment, then the advice might change. No one has a crystal ball."
Added Warshauer, "Right now the market is trading a lot on emotion, not a lot of rationality."
If the recent 20% drop in oil prices holds, that is a "headwind that is reduced," Powell noted. "This might help maintain consumer spending on discretionary items. The key is people keeping their jobs."
Financial Finesse's Young noted consumer borrowing is a function of what happens in the larger economy. Unless unemployment gets better, he reasoned, people won't spend money.
"When someone's portfolio is going down, they tighten their purse strings, even though the Fed said it would keep interest rates down for the next two years," Young said.
CUNA Mutual Group's Powell observed that most consumer lending rates are based on Treasury notes, particularly the 10-year note, leaving open the possibility the inexpensive cost of funds might finally shake loose some loan demand.
"Consumer borrowing is seeing record low rates, so it is an opportunity for consumers to lock in lower rates and benefit from what is going on," Powell explained. "Given what the Federal Reserve has said regarding keeping short-term rates near zero for the next two years, the Fed is encouraging people to continue to spend and invest rather than hold cash at very low rates. We think it is a good time to do a little of each-invest and spend.
"And," he added, "it doesn't hurt to keep a little dry powder in case things get worse from here, in the form of cash in a money-market account."
