8 tips for investing in hard times

"One simple way to earn a good return is to start paying down existing credit card balances. The return you will earn will be equivalent to the rate charged on the existing card balances. In many cases, this return will be hard to top in a difficult investment environment. A smaller balance will allow you to have more credit available for temporary needs in times of emergencies.

"It might also be a good time to request an increase in your credit limit to give you even more room for future contingencies. If you have trouble making additional payments, setting yourself up with an electronic automatic payment plan with your bank will keep this going on automatic pilot, just like your 401(k)."

2. Be prepared 
Just like the Boy Scouts suggest, it can make sense to be ready for the worst while hoping for the best in the economy and your personal finances. Jonathan Clements, senior special writer for The Wall Street Journal, offers the following tip:

"Set up a home equity line of credit. Recession means lay-offs, and a lay-off means you will need cash. Sure, it's best to have a pile of money sitting in a high-yield online savings account or a low-cost money market fund. But failing that, a line of credit could come in handy.

"Sound attractive? Set up the home equity line of credit now, while you're still employed and still appear creditworthy."

It's a paradox. Banks don't like to lend money to people who need it. Borrow before you need it and both you and the bank are happier.

3. Look beyond tomorrow's headlines 
The stock market is a leading economic indicator. A decline in the stock market may help predict hard times, but it should also be the first indicator that the economy is turning around.
“This is the time to be buying stocks.”

The Wall Street Journal's Clements suggests that you "Ignore the headlines and anticipate the recovery. The worst for the economy may be ahead of us. The worst for the stock market is probably behind us.

"This is the time to be buying stocks, not selling them. Stock investors have already discounted a slowing economy -- and, with the recent rally, investors seem to be looking ahead to better economic times."

4. Stay the course 
David Landis, CFA, a contributing editor at Kiplinger's Personal Finance, advises investors to stay the course.

"Presuming your readers have diversified portfolios, they were designed for times like these. Portions of the portfolio that are expected to outperform during a slowing economy will presumably do so. And when the recession has run its course, which may be sooner than we think, the parts of the portfolio that traditionally outperform in a recovery are already in place and ready to pop.

"Yes, you could try to shift your portfolio into a defensive stance, but chances are you would miss the turning point and what could be a substantial run-up in stocks in anticipation of a recovery."

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