TIAA-CREF Addresses Concerns Over Market Volatility

by Brett Hammond, Chief Investment Strategist, TIAA-CREF

Key factors driving the financial crisis

Tumultuous markets continue to be a source of anxiety for TIAA-CREF participants, as they are for all investors. As volatility continues, I want to explain how this crisis developed.

A number of factors are driving stock markets lower around the world:

• Commercial banks are unsure of each other's safety, and many are refusing to lend money to each other.
• These interbank loans are the lifeblood of commerce, and therefore this crisis of confidence among banks threatens the global economy. 
• Many individuals and institutions have borrowed heavily. They need cash to make debt payments, and are afraid that, if they don't sell their stocks now, they will get less for them in the coming weeks.
• Falling stock prices are causing many investors to sell out of fear.
• All investors would like to know when stock prices will stabilize. In the current environment, that depends less on economic fundamentals and more on investor sentiment.

In addition, the U.S. Treasury has announced plans to take an ownership position in some U.S. banks. This is the kind of dramatic move that, if done quickly and accompanied by firm leadership, could be very effective.

In mid-October, President Bush met in Washington with the finance ministers of the other G7 nations — Britain, Canada, France, Germany, Italy, Japan — and the heads of the International Monetary Fund and the World Bank. Treasury Secretary Henry Paulson also met with the finance ministers of 20 leading economies to plan coordinated measures aimed at stabilizing the credit markets and easing the pressures on stock markets.

Additional details about the origins of the current crisis and some of the steps being taken to stabilize the markets are available in this edition (PDF) of Market Monitor.

Guidance for Investors

by Bernadette Davis, Vice President, TIAA-CREF Client Services

There are a number of important points to keep in mind during these turbulent times. While stock markets have fallen sharply, stocks are still trading, and there are willing buyers for most stocks. By selling now, you may be locking in losses that so far have only occurred on paper. If you hope to reenter the market at a later time, you may be buying back these stocks at higher prices.

We would expect that investors would not want sell at a time when stocks may be at or near the bottom of a market cycle. If you feel compelled to sell your stock holdings based solely on the market decline, you might consider doing so in a way that is consistent with your long-term asset allocation plan and savings goals.

If you are making voluntary contributions to a retirement saving and investing plan, the downturn in the stock market makes those contributions more important than ever before. However, the stock market's recent volatility may make you wonder whether that is the right thing to do. Putting money aside for your future on a regular basis is an excellent habit, and this is no time to break it.  You can find investment options that match your risk tolerance.

Remember that you allocated money to stocks as part of a diversified portfolio for a good reason:  historically, stocks have outperformed many other asset classes and have repeatedly recovered from steep drops over time.  Of course, past performance is no guarantee of future results

Even if you are close to retirement, remember that your savings and investment time horizon doesn't end the day you retire. You probably are not planning to withdraw all of your retirement assets in the next few years. You are looking forward to living for decades in retirement, and a lot can happen in the markets during that time.

As unsettling as these turbulent times are, we encourage you to stay focused on the long term, and not to react in ways that might endanger your long-term financial well-being.

TIAA-CREF is committed to keeping you informed, and will provide regularly updated communications about managing your accounts.