5 rules for thriving in a bad economy |
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If you've neglected your assets, such imbalance could put you at greater risk.
Recent drops have left many investors in a position where they need more equities and less fixed-income. That may come as a shock for safety-hungry investors who are eager to stock up on fixed-income, cash and other "safe" assets.
"If your asset allocation was good for you six months ago, it should be good for you today," says Ellen Rinaldi, executive director of investment planning and research at Vanguard. "The fact that the market is volatile should remind you to be appropriately diversified."
Personal factors like your age and risk tolerance -- not the current state of the economy -- should drive your investing. For example, workers in their 20s and 30s should generally devote roughly 80 percent to 90 percent of their assets in equities while people in their 60s approaching retirement may devote up to 50 percent of their assets to stocks.
"Use market declines as opportunities to add to holdings," says Stovall.
Remember, it's a misstep to put your faith in gold, commodities or any other particular asset that seems popular now that the stock market is roiling.
"If you liked the market four months ago, it's at a 15 percent discount," says Brett Horowitz, a financial planner at Evensky & Katz. "It's a great time to buy. When you buy at a point when everything looks ugly, that's good. You're buying low. It's forward thinking."
Rule No. 3: Don't let your home become a trap
Experts agree that tough economic times mean homeowners must figure out if they've got the best mortgage possible. Many people have adjustable-rate mortgages that are about to reset higher, causing their monthly payment to balloon.
It's imperative for these homeowners to refinance to a lower, fixed-rate mortgage that will give them more stability in their month-to-month finances.
Unfortunately, that's easier said than done right now.
The nation's credit crunch and subprime mortgage debacle mean access to loans is fast disappearing, or becoming prohibitively pricey, for borrowers with less-than-sterling credit.
"Interest rates are being more unevenly applied in the marketplace than they have been in recent years," says Keith Gumbinger, vice president of HSH Associates, which tracks mortgage trends nationwide.
If you count yourself among those with good credit and have a FICO score of at least 680, don't squander current opportunities to save.
Recently, mortgage rates have moved up and down in yo-yo fashion. Try to take advantage of the best rate you can find.
It may be more prudent to spend a little extra on a fixed-rate loan and lock in a super deal rather than selecting an ARM that may cost far more when it resets, says Gumbinger.
Those with less-than-stellar credit have fewer options. That's especially true of borrowers who took out ARMs to pay for their homes.
"ARMs are strangling people. They are like a B-rated
horror movie. If at all possible, get out of them," says Dee Lee,
a Certified Financial Planner and author of "Let's Talk Money."
Consumer groups may help those whose credit is making
it difficult to reset. The Homeownership Preservation Foundation, (888)
995-4673, has a 24/7 hot line where you can reach counselors. The
Homeowner Crisis Resource Center, (866) 557-2227, also has professionals
who can help individuals facing foreclosure.
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