The federally backed buyout of Bear Stearns Cos. Inc. by J.P. Morgan Chase & Co. over the weekend was perhaps the most glaring example yet of a dismal economic climate. But while acknowledging its significance, financial experts and advisers say African American investors should keep the collapse of Bear Stearns in perspective when considering its impact on their own financial strategies.
But will it directly affect the assets of the majority of African American investors? Not likely, says John W. Rogers Jr., chairman and chief investment officer of Chicago-based Ariel Capital Management L.L.C. [No. 2 on the BE Asset Managers list with $16.1 billion in assets under management].
“Most people wouldn’t have Bear Stearns stock in their portfolio,” says Rogers. “Most 401(k) plans are invested in mutual funds. If you have the bad luck to be in one of the funds that had Bear Stearns as a major holding, you’d be down more this year than you otherwise would have been, but that’s why you have a diversified group of funds. Hopefully with your 401(k) plan, you don’t have all your money in one basket.”
However, Rogers admits the situation would have been worse had the Federal Reserve not taken a decisive role in managing the economic crisis. The Federal Reserve extended a $30 billion credit line to help JPMorgan Chase buy Bear Stearns. Also, on Sunday, the Federal Reserve lowered the discount rate—what it charges to lend to banks—from 3 ½ percent to 3 ¼ percent.
“You would have had this contagion where the problems of Bear Stearns would have spilled over to other investment banks. Then many financial services firms would have been hurt because you would have had a broad continuing decline in financial assets,” Rogers adds.
Economic uncertainty—heightened by the Bear Stearns collapse—could tempt some investors to pull their money out of the stock market, but that’s not wise, particularly for those who have many years before they’ll need the money, says Alexandria R. Morris, senior financial advisor for Polaris Wealth Management in Chicago. “If a person were to take their money out of the market at a time like this, they would miss the gains when the market bounces back,” Morris says. “Something like this shakes investor confidence, but this is a great time for investors to review their portfolios and measure their progress against their goals and their time horizon.”
Black-owned investment firms may, in fact, benefit from Bear Stearns’ downfall, suggests Cristal Baron, chief financial officer of New York-based Rice Financial Products Co. [No. 10 on the BE investment banks list with $11 billion in total managed issues], as its acquisition by JPMorgan may lead to layoffs.
“We’re always interested in engaging smart, talented, creative financial professionals who can add value to our business model and this crisis might afford us and certain of those individuals the opportunity to work together,” Baron says.