Financial Literacy - Growing your bottom line
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How to shrink your bottom line

Carbonaro recommends her clients keep, at minimum, three months' to six months' worth of savings as an emergency fund. For some clients she recommends savings beyond that amount.

"Because if they get laid off in this climate, I want them to have a lot of cash available," she says. "I used to suggest that people get a line of credit on their house and that would be their backup emergency line."

"Of course, you know what the problem is with that -- they keep freezing those lines right now, so that second emergency fund is almost gone or even nonexistent at this point. Not for everybody and not in every case, but the point is that the option is mostly gone," says Carbonaro.

4. Try to get rich quick

Those can't-fail schemes advertised on TV and radio will get someone rich, but it won't be you. Thus they make the perfect investment vehicle for investors looking to lose their shirts.

"Some people would like to believe that there is a system to beat the system and there is always a segment (of the population) that wants to get rich quick. And the only people that do get rich quick are the people that are peddling this garbage," says Eric Tyson, financial counselor and author of "Personal Finance for Dummies 5th edition" and "Investing for Dummies."

"And they charge outrageous fees for what they're selling," he says.

5. Buy high, sell low

Buying a stock or mutual fund at the height of popularity and then selling at fire sale prices is a surefire way to get subpar returns -- and the antithesis of sound investing principles. But chasing returns and hopping in and out of the market based on emotional whims is a common American pursuit.

Chicago-based Morningstar tracks fund returns, but also studies actual investor returns, based on money flows in and out of funds over time. It appears that investors don't win the performance-chasing game. For example, Morningstar determined that the average investor in a large-cap domestic growth fund lost 0.3 percent a year in the 10 years through Sept. 30, but those funds returned 2.4 percent a year on average, according to a report in the Wall Street Journal.

"You have to be able to come up with a plan and then stick to it," says Tyson. "That doesn't mean that you're inflexible. But you shouldn't have knee-jerk reactions to recent news events, and unfortunately some people do."


Tip: Learn about simple and complex long-term investment strategies

6. Raid retirement funds early

Taking early withdrawals from retirement accounts can accomplish two goals at once: Investors can take a bath on their investments' future earnings power, plus they get to donate 10 percent of their withdrawal to the U.S. government, courtesy of a hefty penalty imposed by the IRS.

Losing out on the compounding interest is the real shame, says Carbonaro.

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