Good advice! Thank you very much.
Posted by Ken Drooks on 11/19 at 02:36 PM
Today’s economic environment is uncertain, challenging and upsetting. Many investors have seen their family’s net worth almost split in half in less than one year. Is it possible to restore confidence and rebuild control over your financial future? It is my hope that the following ten strategies will provide a launching point to help you re-focus and re-prioritize your financial life.
1.Maintain an Emergency Fund – You should always maintain a reserve account equal to 3-6 months total expenses in an FDIC Insured bank account. Never consider investing money, if your emergency fund isn’t fully funded. You should always have easily accessible cash on hand.
2.Examine Your Expenses – We have all succumbed to the temptation of good fortunes and excessive spending at some time in our life. Now’s the time to revisit NEEDS vs. WANTS as well as Fixed Expenses vs. Fun Expenses. Your mortgage, utilities costs, food, insurance, auto expenses, etc are fixed costs. The fun expenses include dining out, vacations, manicures, lawn service, club memberships, lottery tickets, electronics purchases. If money is tight, consider strategies to limit the “fun stuff” for a while.
3.Safeguard Your Short Term INCOME Needs – If you draw money from investments to supplement your spending needs, consider allocating three years of distributions from your investment account into a highly liquid cash investment such as a money market account. For instance, if you rely on $2,000 per month from your $500,000 investment account – consider liquidating ($2,000 * 36 months) $72,000 from investment risk and secure your this money in a safe highly, liquid investment such as laddered certificate of deposit, money market funds, short term bond funds, etc. Your remaining portfolio should continue to participate in a balanced collection of stock and bond based investments.
4.Rebalance Your Portfolio – Revisit your existing investment account and insure that it’s current asset allocation remains inline your overall risk tolerance and time horizon.
5.Harvest Tax Losses – This is a rare opportunity to accumulate tax losses that can be used to offset realized gains you might earn in future years. Be aware that despite a challenging market environment, many mutual funds still anticipate paying taxable capital gain distributions http://www.americanfunds.com/funds/effect-capital-gain.htm this year. Now is the time to realize your losses, and reposition your portfolio for future possible gains.
6.Avoid Speculation – This is not the time to try to recoup losses with quick fix investment strategies. If you’ve never used hedging strategies, traded individual stocks or attempted to time investment purchases, now is not the time to start.
7.Invest in the Stock Market – Rather than trying to time the market, if you have cash available, begin building positions in well-managed, highly regarded mutual funds http://www.sec.gov/investor/pubs/inwsmf.htm designed to manage risk while achieving long term returns immediately. This may be a rare occasion to invest in America at bargain basement prices.
8.Don’t give up on your 401k – This employer sponsored pre-tax investment account remains one of the best investment opportunities for working Americans. In fact, contrary to popular belief, you should wish for the stock market to head downward during your “working years” so that you can buy shares of mutual funds at lesser and lesser prices. If you believe that investments will recover over time, never abandon your systematic investment strategy in down markets.
9.Review Beneficiary Designations – Challenging economic conditions offer rare opportunities to reflect and rethink about our life today, as well as the legacy we hope to leave behind. Be sure that you review both your primary and secondary beneficiary designations on retirement accounts, life insurance policies and annuities.
10.Seek Professional Guidance – Now more than ever consumers should be seeking the independent, objective advice of a Certified Financial Planner professional. Yes, you will pay for advice, but in the end, I suspect that after meeting with someone who is both ethical and independent, you will only wish that you sought help sooner. To find a competent, ethical, Certified Financial Planner in your community visit http://www.fpaforfinancialplanning.org
The following advice was provided by Marc S. Freedman CFP®, President/CEO of Freedman Financial, Peabody, MA. http://www.freedmanfinancial.com For more information, please call 978-531-8108. Freedman Financial is a Massachusetts Registered Investment Advisor –Securities are offered through LPL Financial – Member FINRA/SIPC. Investing in mutual funds involves risk, be sure to read a mutual fund prospectus completely prior to investing any money.