Money Tips in Troubled Times

By: State: DC

We're all being affected by the huge transformations rocking our financial system. Here are some tips to consider during these tough times.

Take Emotions Out of Investing

With the present uncertainty in the markets, it's natural to be anxious and confused. But using your emotions as a basis for financial decisions is a losing game. Hasty decision-making often leads to selling low, when the market has tumbled, and buying high, when the markets are bouncing back. Set up a solid financial plan that fits your stage in life and comfort level and stick to it.

Invest for the Long Haul

Investing is a long term proposition. Over the long term, stocks have returned 10.4% per year on average, far ahead of bonds and cash. People are living longer in retirement, and while exposure to stocks should usually moderate with age, even retirees often need some stock investments for growth.

Rebound Effect

Stocks have historically come back after major financial downturns. The past is no guarantee of the future, but being an informed investor helps smooth out concerns over sudden market moves.

Think Twice Before Acting

Pulling out of your investment plan may have unwanted consequences. For example, cashing out your annuity early can trigger surrender charges. Carefully weigh options and consequences before making any investment decisions.

Safety Matters

A number of government insurance programs designed to safeguard your money are in place. Money in FDIC-insured bank-issued money market accounts and CDs are guaranteed up to $250,000 per individual account, at least until December 31, 2009. Your FDIC-insured bank-held IRAs are guaranteed up to $250,000. The Treasury Department announced a new program on September 19 to insure participating money market funds. Brokerage accounts may be covered up to $500,000 by the Securities Investor Protection Corporation (SIPC) due to a firm failure, not for market losses in your particular account. Most brokerages have SIPC insurance, but to be sure check for "Member SIPC" on your broker's web site.

Diversify

Spreading your investments among different asset classes—stocks, bonds, cash, real estate, etc.—reduces risk. Also make sure that your stock investments are spread across different businesses and sectors. Mutual funds provide automatic diversification compared with individual stock investing.

Keep Fees Low

Getting the most out of your investment dollar is critical in these tumultuous times. Fees and expenses reduce your returns over time. That goes for all types of financial products, including 401(k)s, mutual funds, individual stocks and bonds, insurance and mortgages. Investigate how much it will cost to invest in a mutual fund with U.S. Security and Exchange Commission's calculator.

Retirement Reality Check

If you are nearing retirement, make sure that you will have enough money to make ends meet. Use one of the retirement calculators at aarp.org/money to see if you are on track for a secure retirement. Carefully consider when you are going to retire to maximize Social Security benefits. Go to ssa.gov/retire2/applying1.htm to help you decide.

Emergency 911

Set aside enough money to cover basic living expenses for at least 3-6 months. Get help if you lose your job at aarp.org/money/work/articles/laidoff.html. Find out about benefit programs that can help you meet basic needs with Benefits QuickLINK at aarp.org/money.

Cut Costs

Before you think about raiding your retirement nest egg, make sure you have looked at every other area to save money. Consider generic instead of brand name drugs. Shop around for a cheaper cell phone plan. Think about buying groceries in bulk. Eat out every other week instead of once a week. Take public transportation when you can. Explore prepaying your mortgage.

Divided We Fail

It's time we demand that our elected officials come together to make meaningful changes to ensure health and financial security. Join the Divided We Fail campaign, an effort asking our nation's leaders to commit to working in a bipartisan way to provide Americans with actions and answers on health and long-term financial security. Join today at dividedwefail.org.

Stay in Touch

Stay on top of the changes bombarding our financial system. Things are changing on a daily basis so take charge of your financial future.

Go to aarp.org/money and aarp.org/finance.