Bernard Abrams feels like he's immersed in a landfill of some of the market's most odious investments.
It's keeping him awake at night, as he wonders how he will provide for himself and his wife after losing more than half the value of the investments he hoped would carry them through retirement.
At age 83, the Delray Beach, Fla., man is heavily dependent on the fate of stocks, preferred stock and bonds in the most troubled companies in the market, such asCitigroup, Bank of America and General Motors. Each day as he reads the headlines, he debates what to do.
Like many retirees, he bought the stocks and bonds of the companies he thought would always be stalwarts. Now, amid a dramatic financial crisis, stocks of Citigroup, Ford, GM and General Electric have traded at their lowest levels in years; preferred stocks in some large banks have sunk from $25 a share a few months ago to less than $6; and bonds in auto companies are worth about a quarter of what they were when they were issued.
Selling after sizable losses may seem like a mistake, but waiting is becoming scarier by the day as automakers plead with the government to help them avoid bankruptcy, and analysts debate whether the ultimate solution to the financial crisis will be nationalizing large banks.
If nationalization happens, investors in both common stocks and preferred stocks could lose everything, experts said. If auto companies go bankrupt, Fitch Ratings analyst Mark Oline said, there would be "minimal recovery" for bondholders, language that tends to mean between zero and about 10 percent of the original value of the bonds.
That leaves investors, and especially retirees, with miserable choices.
Sid Blum, an Evanston financial planner, said it's important to watch your investments closely. Whenever someone needs safe investments for income, and they morph into something riskier, a rule of thumb is to sell without waiting. Early action keeps a small loss from turning into a worse loss.
Still, Blum said, if a person can get $6 by selling a bank preferred stock, that's better than nothing. If they can recover a quarter of what they spent on a bond, that's better than nothing too.
Analysts watching banks and auto companies aren't sure what the future will bring amid government involvement.
"What's been so troubling is the ground rules have changed based on what the government rescues and what it doesn't," said Mary Miller, the head of fixed-income investing at T. Rowe Price. "So it's easy to make the wrong move."
But Chicago financial planner Bruce Weininger said he wouldn't try to predict the future: "When the value of companies is unknowable, we do not hold them."
For a person depending on investment income, he would be inclined to sell impaired stock or bonds and keep the money safe, maybe in certificates of deposit.
With five-year CDs paying about 3 percent interest, that might be a scary prospect for retirees living on a fixed income. But if the money is in an FDIC-insured bank, at least it will be secure up to $250,000 this year and $100,000 after that.
Another alternative for people counting on income would be buy a fixed-income annuity. For about $100,000, a person might be able to secure $800 to $1,000 a month for living expenses, said Moshe Milevsky, associate professor of finance at York University in Toronto and author of "Are You a Stock or a Bond?"
Retirees who have paid off their mortgages also can be secure knowing that if they are desperate for living expenses, they can draw on the equity in their homes through a reverse mortgage. Such loans have high upfront fees, perhaps $15,000 on a $300,000 home, said Bronwyn Belling of the AARP Foundation. But for those who need money and don't feel compelled to leave their homes to children, it's an option. Find information at www.aarp.org/revmort.
