Personal Finance Idea for 2009
During the worst economic crisis in the life, the right financial decisions are crucial.
BusinessWeek asked financial planners for advice on what to do – or not – with their money in the New Year. As we bid farewell to a terrible 2008, these "resolutions" can help keep your finances on track in 2009:
1. Do not try to predict the future.
"We are currently in the midst of unprecedented and complex challenges," said Femi Shot Asset Harvest Group in McLean, Virginia who thinks he or she can predict what will happen is "delusional," said shot.
Financial advisers tend to listen to customers who want to sell stocks now and then buy again when the market hits bottom. "My answer is, ’How do you know when?’," Says Trent Porter priority Financial Planning in Fort Collins, Colorado
2. Have enough cash available.
Even if you are not worried about losing their jobs, a rainy day fund can provide peace of mind.
There are different guidelines for the amount of cash to keep on hand. Some say that $ 12,000 or more per adult, while others say it should be six to nine months of expenditures. With available additional money can prevent the sale of investments to pay expenses in case of emergency.
3. Invest internationally.
Despite the financial crisis started in the U.S. last year has been worse for investment in the world. MSCI EAFE, an index of international reserves, has fallen 43 percent this year, and stocks in emerging economies been much worse. American diversified abroad that investors have also been pummeled by the increase in the dollar.
Even after a year like this, advisers say it is not advisable to completely abandon the investment. On one hand, although some of the major overseas economies, including China, have been hit hard lately, long-term economic fundamentals are better than the U.S.
4. Do not try to pick a winning investment. Diversify.
Put all your money in a store is dangerous at a time when the bankruptcy of a company can completely eliminate the value of their shares.
Robert Siegmann of Financial Management Group in Cincinnati advises clients to balance their portfolios of bonds and shares, with shares in various types of companies – large and small, U.S. and international. "Do not try to pick the winner of securities, or the idea of winning. Diversify only through all investments and markets," he says.
5. Suggest energy efficiency.
Francis Russell, financial advisors Portland in Beaverton, Ore., recommends that investors take advantage of a $ 500 federal tax credit for residential energy that was revoked in 2008 but returned in 2009. The credit can help cover the costs of replacing or adding insulation doors, windows, furnaces or – home repairs that should also save on heating and cooling costs.
6. Do not stop to help 401 (k) and other retirement accounts.
Sydney Blum said of GreenLight Fee Only Advisors in Evanston, Illinois: "Everyone loves to invest in their 401 (k) when markets are flying high, but should keep putting money into the markets, but the figure had fallen." He adds: "More money is at the bottom of a market that at the top."
Even more pessimistic planners say they must take advantage of any match your employer provides for contributions to pension funds.
7. They live below their potential. Save.
Investing for the future is only possible if you have money left over at the end of each month to sock away.
8. Do not make sudden movements.
"Refrain from making extreme changes in the portfolio simply because financial markets are volatile," said William Howell, a financial adviser in Noblesville, Ind. "Stick to the global investment game."
In the extreme environment, investment decisions based on emotion or fear may lose money. It is probably best to ignore the daily news and a long-term follow-investing plan.
9. Charging expensive debts.
Instead of investing their money, for the first time might consider paying debts, especially those with high rates or where the interest is not tax deductible. Avoidance of interest is likely to save more of its investments have earned.
Stanley F. Ehrlich, a consultant in Westfield, New Jersey, said: "a loan to pay 7 percent interest provides an immediate return of 7 percent, a return that is not [currently] available through most of the class’s assets ". Credit card debt is so expensive that most planners say it’s always the first thing that people must pay.
10. Do not abandon stocks.
"Historically, some of the best periods of stock market returns have been for economic times sad," says Paul Winter of five seasons Financial Planning in Salt Lake City. While investors should not approach the retirement risk too much money in capital markets volatile, investors hope to build a nest egg for the long term, have fewer options than the stock market.
11. Keeping track of their expenses.
"It’s very easy to lose sight of the fact that their funds are spent," said Alexandra Ollinger Capital Truepoint in Cincinnati.
G.M. Livingston III, a planner in Santa Rosa Beach, Florida, advises clients to buy software such as Quicken to track your expenses. "It is a universal mistake," says Livingston. "Most people do not know where your money goes."
12. Do not pay high management fees.
No matter how much you earn only their investment but also important is the amount that is left after trading costs and fees paid to financial advisers and fund managers. When market returns are small or nonexistent, even a 1 percent or 2 percent management fee may hurt. Decide if it’s worth it. It also offers consulting traditionally low cost of funds as the leading companies, where the average mutual fund expense ratio is 0.2 percent.
13. Make review their credit reports.
With the Federal Reserve cut the federal funds rate close to zero and policy makers are eager to revive the housing market, mortgage rates are expected to fall substantially in 2009. That could be a great opportunity to refinance their mortgage, but only if you have a solid credit score. Check your credit report for errors now, said Scott Beaudin Path Financial Advisors in Burlington, Vt. "Fixing the problems takes time and does not want to be trying to fix its report, while in the midst of a mortgage application," he said. The three consumer reporting agencies in the U.S. created a Web site to allow consumers to access a free copy of your credit report every year.
14. Does not follow the herd.
"Be fearful when others are greedy and be greedy when others are fearful," said the legendary investor Warren Buffett. Warren Ward, a consultant in Columbus, Ind., agreed to advise their clients to ease back into the markets for stocks and bonds instead of seeking the safety of the Treasury or the box like many other investors are doing now. "Make your own thoughts and not let it panic to take an action that is going to regret," says Ward.
15. Make a written investment plan and budget, and stick to them.
A budget can help to control expenditure and increase the amount of money you save each month. An investment plan has the thrill of your investment decision. "The systematic investment [is] especially [important] during the market," said Ward.
16. It is not necessary to waive the insurance.
You can save some money by increasing your car insurance deductible or to forgo life, disability or home insurance, but also could run out of money after a major emergency. Full coverage is not always necessary, but make sure you’re protected in the worst cases.
17. Output of its financial advisor.
The arrest of Bernard Madoff, which saw its $ 50 billion of hedge funds in an alleged Ponzi scheme collapsed, shows the danger of relying on one person – if a fund manager or a financial planner and adviser – to manage their savings.
Do not just pick a broker or planner of the Yellow Pages. "Do your homework," says Eileen Freiburger ESF Financial Planning Group in Manhattan Beach, California Ask advisers about their qualifications, certifications, and education, as well as their fees, ethics and disclosure policies. Found in online databases that track complaints against planners. Regulatory Authority for the Financial Industry BrokerCheck is a good place to start.
18. Do not invest in anything you do not understand.
This financial crisis has demonstrated the dangers of excessive complexity in the world to invest. Lost major investors in asset-backed security and other investment that in many cases never understood first. If your adviser or broker can’t adequately explain the investment in a few sentence maybe not for you.
19. be sure to secure the investments are really safe.
Joseph J. Mark Sentinel Wealth Management in Reston, Virginia, with sticks super safe government debt for its clients fixed income investments. "Bonds are for safety, to ensure that their bonds are safe," he says. "Just because something is a fixed income investment does not mean it is safe."
If your bank or broker fails, make sure your bank accounts are covered by insurance from the Federal Deposit Insurance Corporation and their brokerage accounts by the Securities Investor Protection Corporation, or supplemental insurance.
20. They have no more risk than you can handle.
Some investors react to losses in 2008 for trying to be more cautious and conservative in the future. Others, however, seek to recover their losses through the bold, risky bets on the next big thing.
What has happened in past recessions, says Elaine Scoggins of Merriman Berkman Next in Seattle. After the tech bubble, investors flocked to real estate. A classic mistake is "following an investment by an even bigger mistake."
Last year gave investors an idea of how bad conditions can get to market. In future, investors may want to assess how much risk they are willing to actually take and how long you’re willing to wait to get big returns.
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