Thursday, October 2, 2008

What to Do With Your Finances in These Scary Times

This blog does not dispense investing advice. Please! I think my target audience is people like me who don't have much to invest in the first place.

However, I have been giving a lot of thought to what my family should be doing with what we have in this volatile and uncertain time. Here are my ideas. I'd love to hear yours.

1) Don't make any sudden investment moves. I did not become a financial expert during my years as a business reporter, but one thing I did learn is that even the experts can't succesfully "time the market." Despite all the predictions, no one knows where the market is going tomorrow or even later today. In generally we will be sticking to our long-term goals within our 401(k)s, IRAs and college savings accounts, without trying to get out of stocks as prices decline. I'm also wary of excessive buying as prices decline, because you never know when you are "catching a falling knife." Remember that the biggest price declines in the Great Depression happened over a long period. If you bought on the second day, you would have lost massive amounts of money.

2) However, I might consider one move: If we are lucky enough to see another recovery after the financial rescue bill passes, I will sit down THAT DAY and shift our account allocations to slightly more conservative profiles. For example, if the account is in 90 percent stocks, and if stock prices have rebounded from where they are now, I might shift to 80 percent stocks. If we don't see another rebound, I'm doing nothing, because I refuse to sell when prices have already declined.

3) Conserve cash. We were considering embarking on a bathroom remodel, but now I think we'll hold off, for several reasons. 1) We might encounter great investment and buying opportunities to use our cash on as the recession deepens. Contractors may offer great discounts on that remodel. Or we might get the chance to buy a newer car at a deep discount. Or we might finally feel that the market has hit bottom and decide to invest some of our reserves in stocks. On a more gloomy note, we might need that cash for survival if my husband loses his job.

4) Continue shopping conservatively, and stock up on what I can. A job loss will hurt regardless, but we'll feel better if the larder is completely stocked going into it.

5) Get our spending under control NOW. I talk a good game, but since our daughter started her new preschool, we have been having a hard time keeping monthly outflow below monthly inflow. I'm doubling down on these efforts.

6) Take advantage of all opportunities to earn more now. We might not have the chance later.

7) Not worry too much. After all, worrying can't bring a better outcome, and no matter what happens, it will be an adventure and my family is together. After all, my grandparents survived the Great Depression and in fact some of their happiest memories date to that time. We'll survive.