| by Dr. Jeffrey Lant The Greek chorus of financial doom and gloom is out in force these days. Major stock market indexes are in the red for the year and prominent investors warnings make headlines worldwide. Former Harvard University endowment chief Mohamed El-Erian calls painfully modest returns the "new normal" and predicts at least two years of lackluster stock gains. Jeremy Grantham, a Boston investment manager renowned for his pessimism, predicts "seven lean years," a scenario that sounds almost Biblical. Even U.S. Federal Reserve chief Ben Bernanke, shocked lawmakers in July when he declared the financial outlook "unusually uncertain." So, what's the average investor to do when the chief economic poobahs of the land have gone Chicken Little with a vengeance? I humbly submit the following advice to calm you down and keep your wealth development and investments on track. 1) Chill, calm down, think clearly. The celebrated 19th century banker J.P. Morgan when asked his prediction about the stock market responded that "it will vary." The same is true today. Thus, the first essential in confronting economic uncertainty and confusion is to remain calm. The overwhelming majority of financial prognosticators are predicting lower growth and lower returns, NOT a breath-taking crash. 2) Are you really worse off? It is important to understand that any losses you have sustained in the stock market are not realized until you sell. So, do you really need to sell the stock just now? The best advice (though difficult in times of financial turbulence) is "buy and hold." Unless you truly need the money for something you cannot put off (like medical expenses or college tuition), leave the money where it is and learn to leave it alone. Moreover, don't spend every waking hour checking stock prices online. "Let it be", while you get on with the overall business of improving your economic situation. 3) Cut your expenses. Most of us are fairly casual about our expenses. The money comes, the money goes; we're never quite sure where and how. Particularly during periods of economic uncertainty where millions of jobs are at risk, this is a lousy way to handle our money. It's time for a general review of your expenses and minute scrutiny of all outflow. You must know (not just think you know) where the money goes. Not just for yourself, but for every member of the family. The best way to do this is to call a family meeting (mandatory attendance) and lay out the facts. Review all the numbers. See where cuts and savings can be made. 4) Institute the "Do I really need this?" rule. The plain fact is, most of us can get along nicely spending a lot less than we do. The "Do I really need this?" rule will help. Apply it liberally to each and every potential purchase... no matter how small. Remember, gaining control of ALL your purchases is vital to your financial well-being and wealth. 5) Cut up your credit cards. It was recently reported that Matt Amorello, former head of Boston's "Big Dig" (the largest construction project in history) ran up huge 6-figure personal credit card debt on an income of $200,000. Here was a guy who really needed to cut up his credit cards as a matter of urgent priority. You do, too. Far too many people have far too many credits cards. This is fatal. Thus, sit down at the kitchen table and start the painful process of destroying all but one of them. If you're like most people, you'll offer ready rationalizations about why you need to keep more than one. Don't give in to spending temptation. Apply your scissors with a will! 6) Clear out your attic and get the tax deductions. ALL of us have a ton of stuff in the garage, basement, and attic we no longer need. Friend, this mountain of things isn't making you any money... unless you donate and take the charitable donation. Face it, you've been meaning to tackle this problem anyway, right? Do it now! As regards charitable donations, too many people wait until the end of the year when they have too little time to really take on this task. The earlier you do this in the year, the better! And ALWAYS make sure you get a receipt for everything you give. 7) Keep investing Despite its often jaw-dropping ups and downs, the stock market remains the best place for long-term financial growth. Thus, you must keep investing even when it takes nerves of steel to do so. Like now. Review the major mutual fund companies (all of which invest substantially in financial intelligence). Contact a representative. Select a day of the month when funds can be automatically withdrawn from your checking account Then invest consistently, no matter what. This is called "dollar cost averaging" and means you will invest when stocks are high... and invest when they are low. Consistency, discipline... and time produce the gains. 8) Make sure your kids participate in what you do. If you really care about your children's welfare, you'll make a decided effort to involve them as you implement the steps above. Children often get spooked by bad economic news and need reassurance -- and good explanations about what's happening and what the family is doing to cope. The worst thing you can do is to be secretive about what's happening and what you're doing. You may think this is protecting your children... but they don't need protection. They need instruction and clear explanations. That's the best way for a family to confront and prosper from all the financial gyrations present and future! |
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