The Wall Street Journal is running this article today: Ten Ways to Protect Your Finances From the Crisis. I agree with most of the suggestions, but I’m adding a few tips for us younger folks without big investment portfolios and perhaps without homes. Here’s a break down of the Journal’s advice and my two cents.
1. Check that your bank accounts are federally insured. Yes. See my post on the FDIC and why you might need it.
2. Make sure your brokerage accounts are federally insured, too. If you have them, yes. The Securities Investor Protection Corporation (SIPC) guarantees that if your investment bank fails, you’ll get your investments back. (It’s not, obviously, insurance against securities losing value).
3. Put money in thy purse. Yes. Even if you’re not feeling the pinch of the crisis yet, start trimming expenses and saving extra where you can. Increase savings and pay down debt—especially if you are close to your credit limits. Credit could be hard to get in the coming months, so if you’re faced with an emergency, you want to have reserves to draw on (preferably cash, but also credit as a last resort).
4. Set up a home equity line of credit while you still can. (If you own a home yes, sure: get some HELOC quotes and see what you can do. If you’re not a homeowner, consider applying for a credit card or two now). What? Apply for more credit? I know it sounds crazy—and it’s not something I would ordinarily recommend. And I’m not, of course, telling you to rack up debt. I’m telling you to prepare for the worst. Access to credit could really dry up in the coming months; we just don’t know. Better to have a few extra thousand dollars of available credit should you need it down the road (if, for example, you lose your job).
5. Refinance your mortgage. The Journal’s thinking is that rates are crashing, so why not refi? Only problem is you’ll need really good credit to refinance right now.
6. Stop procrastinating over your worst investments. It’s not time to pull out of the market altogether, but the Journal recommends taking a long hard look at any investments that have really bombed, suck it up, and sell them. Rather than looking solely at past performance, I recommend thinking strategically about stocks that may do well as the market eventually rebounds, and shifting your portfolio accordingly.
7. Don’t panic. Couldn’t agree more. Nobody knows what tomorrow will bring. Things could get worse, things could get better. Do what you can to take care of your needs, and go about your business.
8. When it comes to your short-term money needs, nothing has changed. True. If you need access to money in the next two years—it shouldn’t be in stocks. I doubt that this would be the case for most readers under 30, but if it is, consider cashing out—as painful as it may be—and investing in a high yield savings account or 12 or 24 month CD.
9. If you are investing for five years or more, buy some stock. This goes for all of us! If you can afford it, start buying stock! Up your 401(k) contributions, max out your IRA, or start trading on your own. Check out our recommended brokers now.
10. If you want to worry about anything, worry about your taxes. Unfortunately, it’s true. No matter what happens and who is elected, taxes will have to go up. Consider using a Roth IRA to save for retirement. You’ll make after-tax contributions, but withdrawals after retirement age are tax-free. And by then taxes might be really, really high.