I am going to be on the radio today talking about how to handle this down stock market. I put together a cheat sheet with helpful tips 7 steps to take.
1) Build up your emergency savings account. Open an online savings account if you don’t have one already. They pay a higher interest rate (at least 4.5%) than most banks and FDIC insured. Visit www.ingdirect.com, www.emigrantdirect.com, www.fnbodirect.com (6%!). Setup an automatic savings.
2) Make sure you are diversified. Truly diversified. Every person should have some type of intermediate term bond in their long-term portfolio or retirement portfolio. It will protect you if the stock market continues to go down.
3) Keep your expenses low. If your mutual funds are going down 6-10% (which is comparable to this market), having a high expense ratio will only add to those losses. Keeping your expense ratio low and only buying no-load funds helps stem the losses.
4) Evaluate your mortgage situation. This area seems to be hit the hardest in this current market. If you need to refinance because you have an ARM mortgage, get on it now and start calling mortgage brokers, your bank and go online to www.eloan.com and www.bankrate.com. Deal with it now because the mortgage situation could get worse and interests will probably be going up. Also, if your house is larger than you can handle, downsize. You don’t need the 4,000 square foot home.
5) Keep investing in your 401(k) and IRAs. Especially if you are contributing automatically, you are taking advantage of dollar-cost averaging and buying at a low price. As long as you are diversified, especially through a target retirement date mutual fund (like at Vanguard, T. Rowe Price or Fidelity).
6) If you are retiring in the next 5 years…. You should not have a huge percentage of your portfolio in equities. Lock in fixed interest rates on bonds and fixed annuities and setup a ladder system for your bonds and CDs. Decrease your exposure to stocks as soon as possible.
7) Stop using your credit and debit cards. The stock market and mortgage situation could get worse before it gets better. Don’t accrue more debt and you will only be in a more secure situation.
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