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Wall St. Damage Ripples Across the Population 

By: Louis Uchitelle
New York Times, July 21, 2002

anting a second child, Gary and Kristen Tyler, both 41, thought the best thing would be to borrow $20,000 from his 401(k) to pay for in vitro fertilization. But with the stock market plunging, taking that much out of Mr. Tyler's retirement account has suddenly become very problematic.

In Wall Street's heyday, Mr. Tyler's 401(k) went as high as $60,000. Now it is down by at least $10,000 — and still falling. "Just when you think it can't go down anymore, it does," he said. "It is almost abstract, unreal what is happening."

But with real world consequences. Like millions of working Americans, Mr. Tyler, who earns nearly $90,000 a year as a computer programmer in Manhattan, is just beginning to experience the hardships of the falling stock market. Others are already deeply hurt: retirees and those nearing retirement, for example, who count on their stocks to help pay day-to-day expenses, and day traders and stockbrokers who make their living from the market.

The Dow Jones industrial average has fallen more than 1,360 points, or 14.5 percent, in the last two weeks, with one-third of the loss coming on Friday alone. It was the worst two weeks for the Dow since October 1987, when the market crashed.

And now the damage is spreading across the population, helping to dampen the optimism that the economic recovery will soon gain strength. But even in the current debacle, many Americans are hanging on to their faith that stocks remain the best place for their money over the longer run. That faith is giving way only gradually.

Having paid little attention to the market, Andrea G. Eisenberg, the 52-year-old manager of an outplacement firm in Manhattan, is finally alarmed that a decade might pass before her savings — still above $1 million and three-quarters in stocks — make up the 35 percent loss in her portfolio over the last two years.

Still, she resists selling. "I don't want to lock in my losses," she said.

Nor is Mr. Tyler shifting his 401(k) out of stocks, not even his new contributions. During Friday's drop, he considered purchasing AOL Time Warner stock, figuring it will rise smartly when the market rebound comes, long before he retires. Meanwhile, as prices fall, the cost of buying additional shares for his 401(k) will be low enough, he hopes, to make up eventually for all his losses.

"You are in effect buying more shares that will be worth more when stocks recover," Mr. Tyler said, reflecting an optimism about the resilience of stocks that showed up frequently in interviews last week.

To some experts, investors are only deluding themselves. "Consumers bet the ranch on the bull market, and they are in denial now," said Stephen S. Roach, chief economist at Morgan Stanley

More than 50 percent of the population owns some stock, a percentage that swelled in the 1990's. But most Americans still see themselves more as "spectators" of the plunging markets and their diminished wealth than as seriously damaged parties, says Andrew Kohut, director of the Pew Research Center, a polling organization. Paid employment is a powerful insulator; while the unemployment rate has been rising, it remains at a moderate 5.9 percent.

"People do not feel the floor has dropped out from under them, but they do have anxiety about the future," Mr. Kohut said. Their anxiety "can have political consequences if it turns into real belt-tightening; that has not happened yet."

There are other safety valves. For all the popularity of stocks as an investment and the market's influence on confidence and consumer behavior, corporate shares represent, on average, less than one-fifth of the total wealth of the vast middle of the population, with accumulated net worth of less than $250,000, Federal Reserve data indicates. Homes, by contrast, are far and away the major investment of these households, and home prices are rising.

That is certainly true for the Tylers. They sold some shares in 1998 to raise $18,000 as a down payment for a $179,000 house in South Orange, N.J., a home now worth much more. "We have seen similar houses selling for the high $200,000's," said Ms. Tyler, an art therapist who gave up her job to raise the couple's 4-year-old daughter, Daisy.

The wealthiest fifth of all households, with net worth in excess of $250,000, have the biggest stock portfolios and are suffering the biggest dollar losses. But they, too, have a substantial fallback. Nearly one-third of their wealth is in stocks, on average, but double that amount is invested in private businesses, including their own, and in real estate, other than their own homes.

"My world does not revolve around my stocks, and that is critical," said Gordon Andrus, a 55-year-old Houston lawyer and oilman who calculates that his portfolio, now down to $2 million, has lost about 12 percent of its value since Sept. 11. He is counting on income from more than $10 million in oil and gas investments for his retirement

"I haven't sold any stock," he said, "although at 3 o'clock in the morning I occasionally think about what is going on."

The upshot of his thinking, he said, is a decision to tell his broker to start buying soon, in anticipation of a rebound. Whatever happens, his intention is to pass along his shares to his heirs. "For me," he said, "stocks are a safety net."

Like the Tylers and Mr. Andrus, Trina Visceglia in Cincinnati is similarly confident that a rebound will come. When her father died in 1996, while she was a freshman at Vanderbilt University, he left her more than $175,000, which she turned over to a financial adviser who invested the entire inheritance in stocks. They went straight up, reaching a high of well over $500,000 in 1999, even after Ms. Visceglia withdrew more than $75,000 to pay for college.

And then the fall began. On the way down, she took $60,000 out as a down payment on a three-bedroom town house, now rising in value. Otherwise she has stuck with stocks, ignoring her mother's pleas to put more into cash. Today her portfolio has fallen in value to the original inheritance from her father.

Yet she still uses the same financial adviser, whom she describes as a trusted if less optimistic friend. She is 24 now, earning more than $35,000 a year as a community relations specialist for Toyota North America. Despite her roller coaster market experience, her 401(k) contributions still go into stock funds.

"I have to stay optimistic," Ms. Visceglia said, expressing a reluctance to sell or shift out of stocks and thus lock in her losses. Meanwhile, she tries to live much more within her salary than she had earlier. "I certainly think twice about making big purchases and I don't feel as comfortably off," she said. "But I don't feel cheated; the stock market is a gamble. You kind of sign up for that when you get into it."

Ms. Eisenberg, on the other hand, finally feels the pain. As managing principal of the New York operation of Right Management Consultants, an outplacement service for laid-off workers, she has a six-figure income, she says, and a net worth that had grown through the late 1990's.

At 52, she is counting on many years of work before falling back on her stocks in retirement — but unmarried and childless, her stock portfolio will be a vital source of income once she stops working. The 35 percent loss in her portfolio, she said, "is pretty significant for me."

Still, she was not feeling bad until last week. Now she sees the rebound in her net worth taking much longer, perhaps stretching close to retirement. "The news seems to be that it will take 8 to 10 years for the market to recover and it will continue to slide for a while longer," she said. "I did not care if it was 3 to 5 years until the rebound. I was fine with that. But 10 years?"

The stock market's steady decline is just beginning to catch the attention of Cindy Shaw, 48, a nurse and instructor of nurses at Methodist General Hospital in Memphis. She has nearly $100,000 in a 401(k) and two I.R.A. accounts, but does not pay much attention to her statements.

"It is just my little nest egg to retire, and I am too young to retire anytime soon," she said, explaining that much of her energy away from work goes into completing the last course for a master's degree in nursing, and writing her thesis.

What also helps to shield Ms. Shaw from concern is a $48,000 salary. Her husband, John, 56, a gasoline equipment salesman, earns a similar amount. They own a three-bedroom house on two acres of land, a property that is rising in value, and she holds a trust fund set up by her parents.

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