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Key to investing in recession Stay calm
NEW YORK (6/4/08)--Despite a struggling economy, don’t make the assumption that you should stay away from--or get rid of--stocks. If you do, you may be missing out on some potentially hefty long-term returns (CNNMoney.com May 28). Stock investors already are looking ahead to a recovery, and investment experts say this is the time to be buying stocks, not selling them (Bankrate.com March 3). And with prices relatively low right now, the longer you hold those stocks in a well-diversified portfolio, the greater the likelihood you’ll build up a sizeable stash. Whether you’re a beginning or a serious investor, it’s important to stay calm and get your financial ducks in a row:
* Pay off high-cost debt. If you want an exceptional return in a hurry, pay down high-interest credit card debt. The return is likely to far exceed what you’ll get in the stock market--at least in the short run. * Line up a line of credit. Have this as a backup plan in case you’re faced with high-cost repairs, medical debt, or a layoff. * Revisit your risk tolerance. If you’re less comfortable with higher-risk investments than when you established your accounts, make adjustments so you can get a better night’s sleep. * Find money to save. Even a small amount invested regularly over time adds up. Consider this: Substitute home-made coffee into your regular routine, have that $50 you save every month direct-deposited into a diversified stock mutual fund, and you’d generate more than $29,000 over 20 years if your average rate of return is 8%. Over 30 years, that $50 a month could yield more than $74,000 with the same average rate of return. * Beef up your 401(k). Contribute as much as you can to your company-sponsored plan and take advantage of the company match. If you don’t, you’re leaving free money on the table. * Stay the course. Once you decide on an investment strategy with a well-diversified portfolio, leave it alone. Revisit your strategy periodically--say, once a year--while keeping your sights on a longer investment horizon.
For more information, use the “Financial Longevity” tool in Plan It: Retire Ready Toolkit.
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