With home values dropping, the contagion of the subprime debacle, and uncertainty in the financial markets, analysts are pointing to an economic downturn, better known as a recession.
Only, recession can be a scary word. And there might be a few loopholes to get around the economic downturn.
Expert’s at Bankrate.com offer these strategies for a souring economy.
Although going all-cash and sitting on the sidelines till thinks look better may sound like a good idea, converting investments to cash may do more harm in the long run.
Joe Baker, a certified financial planner says, "People are scared… They’re asking, ‘Is the economy crashing? Should I move my 401(k) to a money market?’"
Baker’s answer: "Please do not, unless you need the cash tomorrow. You’d be making a huge mistake."
The logic being that historically markets make up for their losses fairly quickly. A more common sense approach would be to look at financials swings as being cyclical and that good times and bad time will both pass.
Other factors to keep in mind while you’re investing is your age, and risk tolerance, not the state of the economy, say analysts.
As a rough guideline, those who are working and in their 20s and 30s might want to keep 80-90 percent in equities, whiel those closer to retirement or approaching 60s may want to keep 50 percent in stock-holdings.
Ellen Rinaldi, executive director of investment planning and research at Vanguard was quoted as saying in a MSN Money report, "If your asset allocation was good for you six months ago, it should be good for you today," Adding, "The fact that the market is volatile should remind you to be appropriately diversified."
Experts also say that running into safe-haven investments like gold and commodities when the markets are down is also a mistake.
Brett Horowitz, a financial planner at Evensky & Katz told Bankrate.com, "If you liked the market four months ago, it’s at a 15% discount,".
He added, "It’s a great time to buy. When you buy at a point when everything looks ugly, that’s good. You’re buying low. It’s forward thinking."
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