The wild ride by the stock market this week has people watching their 401(k)s in horror. But those with long-term strategies, including the state treasury and the Colorado Public Employees’ Retirement Association, are less worried about the market’s seesaws and declines, at least for now.

In the five trading sessions beginning last Thursday, the Dow Jones Industrial Average dropped more than 1,888 points, about 11 percent of its value. Similar percentage point declines also took place with the S&P 500 and the NASDAQ. (By mid-week, the market was posting robust gains.)

Financial experts have been warning since last year that this type of decline has been on the horizon. They view the recent decline as an expected “market correction,” rather than a descent into a bear – pessimistic – market situation. Some of the decline is due to the economic problems in Greece. But experts say this past week’s correction was more due to concerns over China’s slowing economy.

Overnight, according to NBC, China’s central bank cut interest rates in order to prop up the country’s economy. The market rebounded a little on Tuesday, but at the end of the day the Dow still lost another 204.91 points.

Keith Maskus of The University of Colorado Boulder, who teacher international economics and finance, told The Colorado Statesman that the situation in China is a catalyst for what’s going on in the markets.

“This is a market correction that’s been overdue for quite some time,” he said Tuesday. “You never know when it will happen, and it’s been more dramatic than I would guess.”

But Maskus says people ought to sit tight and be patient. This correction will hit bottom and start to recover, he said. “We’re at a level where people thought this was a good return on stocks a year ago.”

Maskus is eyeing structural issues in the global economy, which he says will make “for hard sailing, and stock prices will come up, but not as fast in the past.” He’s particularly interested in what happens in China and emerging markets in Brazil and Russia.

State Treasurer Walker Stapleton says he’s comfortable the state’s investments will weather the latest hiccup.

The state benefits from a “very conservative approach” that Stapleton said predates his time in office. The strategy has served the state well over the long term and has insulated the state from sharp market corrections, he told The Statesman on Tuesday. The state invests as a “fixed income investor,” he said, which translates to a preference for reinvesting rather than cashing out on an investment.

The treasurer’s assessment how the market correction will affect the state’s public pension plan is quite another matter, however.

Stapleton, an ex officio member of PERA’s board of trustees, said he believes the public pension plan will have a “significant exposure” – or risk – “to equities in their portfolio.” The pension plan also has an inflated investment assumption that economists don’t believe is realistic, said Stapleton, a persistent naysayer in the face of rosy PERA projections.

Almost two years ago, the PERA board voted to lower investment expectations from 8 percent to 7.5 percent per year, but Stapleton said they should lower it more than that. “As long as they have an inflated investment assumption, they will take risks in the market through equities or alternative investments,” he maintained.

Stapleton believes the market correction could hit PERA’s investment portfolio hard. “It underscores the need to have the retirement system with conservative investment assumptions so that Colorado can fulfill its promise to its retirees,” he said.

PERA spokeswoman Katie Kaufmanis said Monday that the pension plan is a “long-term investor with a well-diversified portfolio. This is different than a person with an individual 401(k) plan, where market fluctuations, even small ones, can have a significant impact on that person’s retirement savings and potentially their quality of life.”

If the market fluctuation has any impact on PERA, it will be disclosed when PERA issues its audited annual financial report next June, she said.

– marianne@coloradostatesman.com