smart spending

The upside of the down economy

But he cautions that you should only pay on credit if it's a necessity, not a luxury, and keep that habit even when the economy improves and spending picks up again.

"We like consuming," Boyd says. "It's part of the American psyche." But he advises people to establish an emergency fund that stays in place even during good economic times. And don't be tempted to dip into it unless you suffer a job loss, and then only for living expenses.

"Some people will develop good habits out of this," he says, with a mindset more like the Depression-era generation, which didn't go as deep into debt. "My grandparents saved money and spent money, but they spent wisely."

Invest in equities on sale

For those in a position to invest, the advice of Bruce Howard, professor of business and economics at Wheaton College, is simple, "Buy when it's on sale." That, of course, is now, when the stock market has been hovering around 50 percent to 60 percent of what it was in October 2007. Though the bottom can't be predicted, everyone recognizes that prices are much cheaper now than they were then. Why pay top dollar?

Mark C. Connell, president of Mark-Christopher, a financial firm in Addison, Texas, says he pulled his clients' money out of the market when it was near its peak and is planning to reinvest this fall when he thinks the market will come close to its trough.

But the market's ups and downs are difficult to predict even if you are an expert, let alone a novice. So if you rode the S&P to its recent lows of 6,400, don't get out of the market now, Connell says. If you don't need the money for at least 10 years then continue to invest and take the ride back up.

"Now the market is sick and not functioning properly," Connell says. "At some point, the fever breaks. We're still not 100 percent, but we think it will function properly again."

Connell advises investors to get involved in making decisions for their portfolio and not rely on what they're reading or hearing on the news. Use your own research by keeping a log of how your investments have performed over time so you can review it periodically and proactively make changes to adapt to the lean times.

You have to decide when you need your money, and if it's not for 10 years or more then invest accordingly, Connell says. But if you need cash in the next few years, you shouldn't keep that portion of your portfolio in the market.


He recommends investors consider this question: "Ask yourself, if you had everything in cash right now, what would you do?" If the answer involves changing your allocation, then do it. Don't hold onto positions once your goals and time horizon have changed.

"People say, 'I just can't look anymore,' but now is the time you have to look and work through the fear of locking in your loss."

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