Personal Finance: 20 Dos & Don'ts for 2009
During the worst economic crisis in a lifetime, the right financial decisions are crucial.
BusinessWeek asked financial planners for some advice on what to do—or not to do—with your money in the New Year. As we bid farewell to a dreadful 2008, these “resolutions” may help keep your finances on the right track in 2009:
1. Don’t try to predict the future.
“We are currently in the midst of unprecedented and complex challenges,” says Femi Shote of Asset Harvest Group in McLean, Va. Anyone who thinks he or she can predict what’s going to happen is “delusional,” Shote says.
Financial advisers often hear from clients who would like to sell stocks now and then buy again when the market hits bottom. “My response is, ‘How do you know when that will be?’” says Trent Porter of Priority Financial Planning in Fort Collins, Colo.
2. Do keep enough cash available.
Even if you’re not worried about losing your job, a rainy-day fund can provide peace of mind.
There are different guidelines for how much cash to keep on hand. Some say $12,000 or more per adult; others say it should be six to nine months of living expenses. With extra cash available, you can avoid selling investments to pay for expenses in an emergency.
3. Do invest internationally.
Though the financial crisis started in the U.S., the past year has been worse for investments in the rest of the world. The MSCI EAFE, an index of international stocks, is down 43% this year, and stocks in emerging economies fared far worse. American investors who diversified abroad have also been pummeled by the rise in the U.S. dollar.
Even after a year like that, advisers say it’s not wise to abandon international investments entirely. For one thing, though some key overseas economies, like China’s, have been hit hard lately, their long-term economic fundamentals look better than those of the U.S.
4. Don’t try to pick one winning investment. Diversify.
Putting all your money in one stock is dangerous at a time when a company’s bankruptcy can completely wipe out the value of its shares.
Robert Siegmann of Financial Management Group in Cincinnati advises clients to balance their portfolios between fixed income and stocks, with shares in various types of companies — small and large, U.S. and international. “Don’t try to pick the winning stock, or the winning idea. Just diversify across all investments and markets,” he says.