It is official: We're in the midst of very challenging times. Inquiring minds want to know how to handle their investments amidst the chaos. Here are five suggestions on how to make the most of this brutal economic period:
- When it comes to your retirement savings just do it. One of the most common questions we get these days is, "Should I continue to contribute to a Thrift Savings or 401(k) plan?" If you are 50 or younger, it's a no brainer. The answer is yes. This is not the time to blink. The cardinal rule of investing is buy low, sell high. If you loved contributing to your retirement plan when the Dow hit 12,000 you should really love it around Dow 8,000. If you're confused about what to invest in, consider a target-date retirement fund, which will do the asset allocation for you.
- Minimize costs by channeling your inner Ben Franklin. If ever there were a time to chant the mantra, "A Penny Saved is A Penny Earned," it's today. So pay attention to investment costs. For instance, if you are considering two mutual funds with similar strategies and track records, opt for the one with the lower cost. If you invest in your taxable account, pay attention to turnover rates in your mutual funds because when the good days return (and they will) you want to invest as tax efficiently as possible so you keep as much of your hard earned money as possible.
- Don't panic about volatility, keep your seatbelt on, and the Pepto-Bismol close. In 2008, the S&P 500 was fluctuated more than 5 percent over 18 days. If you looked at the previous 53 years combined there were only 17 such days where the market changed that much in a day. The current level of volatility is stunning, and to invest successfully in this recession you'll need to keep your wits about you.
- Harvest tax losses. One huge upside to these down times is that unrealized losses abound in many people's taxable portfolios. If you have stock that you inherited from Aunt Mildred or Uncle Melvin that you wanted to unload but you don't want to pay the taxes, this environment provides for a great opportunity to engage in tax loss harvesting.
- Upgrade Your Financial Knowledge. Another huge upside of this crisis is that personal finance is hot, hot, hot. There are shows and articles galore on the subject. So rather than feel depressed about the state of your finances, focus that emotion on getting money smart. For free markets to function efficiently we must have informed participants - so listen read as much as you can about how to live your life from a position of financial strength. If you are already there, share your current knowledge with friends and loved-ones who need it. Confident, knowledgeable investors are the fuel that makes our economic engine run.
We're not going to sugar coat it: These are rough times, and if the economists are to be believed, things will get worse before they get better. However, these five strategies can help you make the most of this unprecedented period in history.
For more advice about surviving the recession, visit Military.com's Finance Channel.