Surviving the Crunch
What to do—and what not to do—in the downturn
First, take a deep breath. Then another. Now you can look at those share prices and your shrinking 401(k) and start thinking about what all the bad economic news is doing to your best-laid plans.
To summarize: major investment bank Bear Stearns collapsed, with the feds bailing out its creditors but not its investors. Oil hit $112 a barrel, an all-time high. The job market has contracted with every report, the housing market is glutted, and, oh yeah, everyone's lost a bundle in the market. Big-name financial stocks like Citibank have given up a third of their value in three months. Credit is weirdly cheap but tight, and President Bush recently huddled with Fed chairman Ben Bernanke, Treasury Secretary Henry Paulson and other financial advisers, trying to decide what to do about the current crisis in confidence.
So perhaps one more deep, calming breath is in order before you start taking action, along with some repetitions of a "this too shall pass" mantra. Feeling better? Now take these steps to make some money while there's blood in the street. And protect yourself so that it doesn't turn out to be your blood.
Leave your retirement account alone. Chances are you're already in diversified mutual funds that will moderate your losses. "Don't sell into this market," says Jane King of Fairfield Financial Advisors in Wellesley, Mass. Rather, keep buying into the market by continuing your regular weekly and monthly contributions. You might even ramp them up a bit, especially if you're a decade or more away from spending that money. Today's share prices might not represent the nadir, but they're likely to look very good by 2018 or 2025.
Jigger your other investments. If you own stocks and bonds outside of your tax-deferred retirement accounts, it's a good time to sell some shares on bad days and lock in losses. If you don't want to be out of the market, reinvest the money in other stocks, bonds and funds. Don't buy the same shares back for at least 31 days, to avoid running afoul of tax rules. What about the bank stocks? It's too late to sell early, and some might recover very quickly once all of Washington's confidence-building measures take hold. Investment banks like Bear Stearns remain risky, says Morningstar analyst Matt Warren, but it's a good time to buy smaller, regional banks. They're supported by deposits that aren't going away, and they have access to all of the Fed's emergency lending if they need it.
Pay down costly debts. Get very aggressive about paying down high-cost debt. That includes credit cards, variable home-equity lines of credit and most car loans. "That's one of the best investments you can make," says Atlanta-based financial adviser David Hultstrom. Look at it this way: paying off a 7 percent loan is a sure-fire, tax-free 7 percent return. That's impossible to beat in this market.
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Member Comments
Posted By: BettyB45 @ 04/30/2008 4:00:18 AM
Comment: Some interesting comments like stick your head in the sand and then what's threatening me will go away. All the while your a$$ is hanging out there. Look. We all make mistakes and now we are suffering from it. So if you got those houses because you thought that you could flip it. If you got that car because you thought you could afford it. If you were going to send your kids to a private college because you had saved up for the past 18 years $50,000 to afford it, well all of that is spilt milk. Your in a hole now climb out of it. I can't stand all of the comments about "tough luck" and the finger pointing "you should have known better". Everyone does need to accept responsibility for their actions but these people are really in a bind. You don't have to kick a dead horse. What people need (anywhere in the world) to give themselves opportunity is a new start in life. A way to make new revenue streams. Inject new additional monthly income to get out of the mess they are in. Give yourself a pat that at least you are finally admiting that you need help. Then go read books that can help you develop yourself and find ways to make money. One of the best ones out there is being offered for free to help people control their lives instead of the other way around. "$500 Startup I Want You to be Happy & Wealthy" A step by step guide to starting your own business is written by a successful Entrepreneur who reveals exactly how he did it and how anyone can do it. You can get the free ebook by going to the book's website www.500DollarStartup.com. Hope this helps all of you. Good luck!
Posted By: BettyB45 @ 04/30/2008 3:11:16 AM
Comment: Some interesting comments like stick your head in the sand and then what's threatening me will go away. All the while your a$$ is hanging out there. Look. We all make mistakes and now we are suffering from it. So if you got those houses because you thought that you could flip it. If you got that car because you thought you could afford it. If you were going to send your kids to a private college because you had saved up for the past 18 years $50,000 to afford it, well all of that is spilt milk. Your in a hole now climb out of it. I can't stand all of the comments about "tough luck" and the finger pointing "you should have known better". Everyone does need to accept responsibility for their actions but these people are really in a bind. You don't have to kick a dead horse. What people need (anywhere in the world) to give themselves opportunity is a new start in life. A way to make new revenue streams. Inject new additional monthly income to get out of the mess they are in. Give yourself a pat that at least you are finally admiting that you need help. Then go read books that can help you develop yourself and find ways to make money. One of the best ones out there is being offered for free to help people control their lives instead of the other way around. "$500 Startup I Want You to be Happy & Wealthy" A step by step guide to starting your own business is written by a successful Entrepreneur who reveals exactly how he did it and how anyone can do it. You can get the free ebook by going to the book's website www.500DollarStartup.com. Hope this helps all of you. Good luck!
Posted By: BettyB45 @ 04/30/2008 3:10:06 AM
Comment: Some interesting comments like stick your head in the sand and then what's threatening me will go away. All the while your a$$ is hanging out there. Look. We all make mistakes and now we are suffering from it. So if you got those houses because you thought that you could flip it. If you got that car because you thought you could afford it. If you were going to send your kids to a private college because you had saved up for the past 18 years $50,000 to afford it, well all of that is spilt milk. Your in a hole now climb out of it. I can't stand all of the comments about "tough luck" and the finger pointing "you should have known better". Everyone does need to accept responsibility for their actions but these people are really in a bind. You don't have to kick a dead horse. What people need (anywhere in the world) to give themselves opportunity is a new start in life. A way to make new revenue streams. Inject new additional monthly income to get out of the mess they are in. Give yourself a pat that at least you are finally admiting that you need help. Then go read books that can help you develop yourself and find ways to make money. One of the best ones out there is being offered for free to help people control their lives instead of the other way around. "$500 Startup I Want You to be Happy & Wealthy" A step by step guide to starting your own business is written by a successful Entrepreneur who reveals exactly how he did it and how anyone can do it. You can get the free ebook by going to the book's website www.500DollarStartup.com. Hope this helps all of you. Good luck!