// BLOG
When the Road to Investing Gets Bumpy
September 24, 2008
Investing in the stock market is a lot like driving on a long road trip. At some point, you’re going to run into pot holes and rough patches. When that happens, you should definitely drive with more caution, but you have to keep on going if you want to reach your destination.
Similarly, if you’re investing for long-term goals such as retirement, you will encounter some market volatility, probably several times along your journey. While you may be tempted to pull over and wait out the rough times, it will delay or may even prevent you from reaching your goals.
So what should you do when the road to investing gets bumpy?
Buy Low, Sell High: The whole premise behind investing is to buy low and sell high. You can’t do that if you pull out of the market or stop investing when the market goes down. If you’re investing for the long-term, you should be glad when the market is down, because then stocks are “on sale” and you can pick up more shares at a lower price. Who doesn’t love a good sale?
Diversify: One of the best ways to defend your portfolio against market losses is to have a portfolio that is properly diversified. If you review the history of the stock market, you’ll see that the best performing assets vary from year to year and that it’s not easy to predict which asset class will perform well in any given year. Therefore, by having a mix of asset classes, based on your risk tolerance, your goals and your timeframe, you are more likely to meet your goals. In addition, having a mix of asset classes reduces your risk of loss, since you won’t have all of your eggs in one basket.
Smart Money Moves to Make in Tough Times
September 24, 2008
The recent financial news – banks failing, the Treasury taking over Fannie Mae and Freddie Mac, the stock market dropping several hundred points in one day – may have you feeling a bit helpless when it comes to your finances.
While you may not be able to make the market go back up or keep banks from failing, there are steps you can take to make your finances as strong as possible in these tough times:
1. Fund your emergency fund. It’s more important than ever to have an emergency fund, in case you lose your job, have unexpected medical expenses, or have a major house repair, so that you don’t have to sell investments (while they’re down), or rack up credit card debt. The general rule of thumb is to have three to six months of living expenses set aside for emergencies.
2. Reduce debt. If you have high interest credit card debt, the greatest return you can get right now is to pay off that debt. Start by calling your credit card companies and asking for a lower interest rate (if you have a good credit score, you could get your rates down to 8-12%, which is much better than paying 20+ percent). Then make the minimum payments on all of your credit cards except the highest interest rate card until paid off.
3. Review your spending. I’m always amazed at how many people have no idea where their money is going each month. How can you reach your goals if you don’t know where your money is going? If you aren’t already doing so, now is a great time to start tracking your spending using a software program (such as Quicken) or even spreadsheets that you create on your own.
4. Increase your retirement contributions. Many people panic and stop investing in their 401Ks or other retirement accounts when the market is down. When the market is down is actually the best time to invest. Remember “buy low, sell high”? Well, the time to buy low is when the market is down! Make sure that you are investing in a diversified portfolio that meets your risk tolerance, time frame and goals, and that you rebalance once a year.
Keeping Your Money Safe
September 24, 2008
With everything going on in the financial world lately – the Treasury taking over Fannie Mae and Freddie Mac, the collapse of Lehman Brothers and IndyMac Bank, and the government bailout of AIG – it’s no surprise that investors are wondering if their money is safe.
Thankfully, there are safety measures in place for various types of accounts and investments. Here is a rundown of the different safetynets in place for each type of account or investment you may have:
Banks: Bank deposits are ensured by the Federal Deposit Insurance Corporation (FDIC). Basically, the FDIC insures deposits up to $100,000 per owner, per bank. If you have $100,000 or less in your name at any FDIC-insured bank or savings association, you have nothing to fear. Since the limit is per owner, that means you could actually have more coverage than you think (for example, if you and your spouse have a joint account with $300,000 at one bank, $200,000 is insured – $100,000 for each “owner”).
In addition, if you have certain types of retirement accounts, such as an individual retirement account, you’re eligible for even more coverage – up to $250,000 per owner, per bank. However, the FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities and municipal securities, even if you bought those investments at an FDIC insured bank.
If you want to make sure that your deposits are below the FDIC limits, please visit EDIE The Estimator. EDIE the Estimator can calculate your FDIC insurance coverage for each FDIC-insured bank where you have deposit accounts.
Credit unions have similar coverage through the National Credit Union Administration (NCUA).
Key Provisions in The Housing and Economic Recovery Act of 2008
September 6, 2008
On July 30, 2008, President Bush signed H.R. 3221, the Housing and Economic Recovery Act of 2008 (the “Act”).
The Housing Act is intended to revamp the housing finance industry, encourage home ownership and help prevent foreclosures. Below is a summary of some of the tax provisions in the bill that will affect current and future home owners:
* The Hope for Homeowners Program: The Act creates a new Federal Housing Authority (FHA) program designed to help borrowers in danger of losing their homes to foreclosure. Eligible homeowners may be able to pay off their original (foreclosing) lenders with a fixed-rate, 30-year-term mortgage for up to 90 percent of the appraised value of the property.
Eligible homeowners are those who originated their loans before January 1, 2008, spend more than 31 percent of their monthly income on their mortgage, and are currently in danger of foreclosure. Borrowers would have to share future equity with the FHA. The program is completely voluntary; banks may elect not to participate. The program begins on October 1, 2008 and ends in September of 2011.
Jump Start Your Finances
September 6, 2008
Introducing a new consulting service: Jump Start Your Finances
Are you:
- Overwhelmed by your company’s 401K choices?
- Confused about investment products?
- Living from paycheck to paycheck?
- Saving enough to meet your financial goals?
- Getting all the tax deductions you are entitled to?
Jump Start Your Finances is a consultation session for younger individuals and couples, who have important questions about their finances, but who may not yet need a written financial plan.
The Jump Start Your Finances Consultation will teach you:
Debit Card Fraud More Damaging than Credit Card Fraud
August 6, 2008
While I was on vacation this week, some thief was busy emptying out my checking account.
I have always loved the convenience of debit cards, but this recent experience has me re-thinking the cost of that convenience.
First, your liability if you are a victim of debit card fraud is greater than if someone steals your credit card or uses your credit card to make unauthorized purchases.
With credit cards, your liability for unauthorized transactions is limited to $50. However, most major credit card issuers have a zero liability policy, so you typically aren’t liable for anything if you are a victim of credit card fraud.
Traveling Smart During the Hot, Pricey Summer of ’08
June 17, 2008
Summer is when we hope to get time off to relax. But with regular gasoline prices nearing $4 and energy prices pushing tourism expenses higher on everything from plane fare to meals out, paying for this year’s summer vacation might be a significant source of financial stress.
A recent GfK Roper Reports survey indicated that 55 percent of respondents said they are limiting “discretionary expenses like eating out and vacations.”
If that sounds like your agenda, here are some ways to save on travel this summer:
Stay closer to home: Is it that boring around home? Rather than flying across the country, check out the tourism website for your state or the nearest adjoining state to yours and just see what looks interesting. Those websites offer coupons, too. Also, sign up for e-mail from your local transit agencies and check their websites – you might hear about special deals at local museums or parks and free parking sites where you can leave your car before you pick up the train or bus.
What to Do with Your Tax Refund or Other “Found Money”
February 26, 2008
Garrett Planning Network Provides Thirteen Smart Ideas
(Lee’s Summit, MO) February 24, 2008 – After concluding their tax preparation activities, many people will see that they are entitled to a refund from Uncle Sam. “Whether you refund is large or small, you are wise to determine now what you will do when that check arrives,” says Sheryl Garrett, CFP®, author of Personal Finance Workbook For Dummies® (Wiley, November 2007) and founder of the Garrett Planning Network (www.GarrettPlanningNetwork.com). “Don’t fritter it away or spend it on a whim.”
On a recent teleconference, network members brainstormed thirteen ways taxpayers can put this “found money” to work:
1. Put the entire amount, up to the maximum allowed by law ($4000 for an individual in 2007 unless you are age 50+, then the maximum contribution is $5000; $5000 for an individual in 2008 unless you are age 50+, then the maximum is $6000), into a Roth IRA assuming your income falls below the government thresholds (the phase out for singles in 2007 is $99-$114,000 and in 2008 it’s $101-116,000; for married couples in 2007, the phase out is $156-166,000 and in 2008, it’s $159-$169,000).
If you are saving for higher education funding needs, withdrawals of regular contributions to a Roth IRA are not subject to tax or penalty and can be made at any time, and you can take a “qualified distribution” (one that is made after a 5 year holding period, beginning on the first day of the first year for which the contributions were made), if one of the following applies: (1) you are a first-time home buyer, (2) you are age 59 1/2 or older (3) the distribution is due to death or disability. If your earned income for 2007 is higher than the phase-out thresholds, put your “found money” into another qualified retirement plan such as a 401(k), 403(b) or 457 plan if your employer offers one. Consider contributing to a traditional IRA if you have maxed out contributions to your employer-sponsored plan or if a Roth IRA is not an option.
Does the market have you feeling squeamish?
January 23, 2008
As you read the headlines and hear the news, it’s almost impossible to avoid feeling a bit squeamish in today’s volatile market. You’re probably wondering what’s in store for 2008 after such a bumpy first few weeks. Unfortunately, it’s impossible for even the most brilliant economists to accurately predict the future.
The most important thing you can do during volatile market times is to have a plan, and to NOT make rash decisions based on emotion. During volatile markets, planning is essential to minimize your stress level. That doesn’t mean that you won’t feel nervous if your investments decline, but focus and confidence will help you fight the natural human tendency when it comes to your own nest egg to sell when the market is down. Remember the old adage “Buy low, sell high”? Now is the perfect time to “buy low”.
A well diversified portfolio is one of your best allies when markets are volatile. Remember, you are investing for the long term; even if you are retired your investment horizon could still be 20+ years. Market downturns can be great buying opportunities for the long-term investor. For example, your regular 401K contributions this month are purchasing more shares than 6 months ago. When you actually need these funds in 5, 10, or 20 years, chances are very good they will have significantly increased in value. So by buying when the market is low, you are actually leveraging your money to work harder for you in the future.
How to Get Your Free Credit Report
December 3, 2007
Unfortunately the holiday season usually brings an increase in credit card fraud and identity theft, so right after the holidays is a great time to check your credit report. Following is why, when and how to check your credit report…
Why you should check your credit report
- to check for errors
- to check for fraud and identity theft
- to get the best interest rates
- more and more people are relying on credit scores – car insurance, employers, etc.
When to check your credit report:
- Once a year if you have good credit and don’t anticipate any large purchases in the near future
- Before a major purchase, such as a new home, new car, etc. – should request your credit report 6 months ahead of a big purchase so you have time to correct any errors
- If you’ve been denied a credit card, loan or other product or service because of your credit (you are entitled to a free credit report if you have been denied credit based on information found in
your report) - If you suspect that your identity has been stolen
- If you are starting a plan to get out of debt or repair your credit.