10 Ways to Protect Your Finances From the Crisis by Brett Arends
Monday, September 15, 2008provided by
Here are ten things that this financial panic means for you.
1. Check that your bank accounts are federally insured.The Federal Deposit Insurance Corporation (FDIC) guarantees deposits up
to $100,000 per person. If you have to hold more than that, spread it
across multiple banks. As a taxpayer you are paying for this insurance.
Use it.
2. Make sure your brokerage accounts are federally insured, too.
The Securities Investor Protection Corporation (SIPC) guarantees you at
places like Lehman Brothers, Merrill Lynch, E-Trade and the like up to
$500,000, including $100,000 worth of cash. The same rules apply: If
you have more to invest, spread it across multiple firms. Note: The
SIPC is only there to make sure you get your shares and bonds back if a
brokerage fails. It does not, obviously, guarantee those investments'
value.
3. Put money in thy purse. If this market
and this economy get any tougher, cash isn't just going to be king any
more. It's going to be king, queen, emperor, lord high chamberlain, and
the whole court – including the royal cat and crazy prince Ruprecht
locked in the attic. The easiest way to make or find a buck is to save
it. So take an axe to those family budgets. The restaurant meals. The
Super Duper Everything Cable package. The rip-off checking account with
the high fees and low interest. It's all costing you.
4. Set up a home equity line of credit while you still can.I usually don't like advising people to take on more debt, but if
access to ready cash might be a life saver it's best to line it up.
That's especially true if you are worried about your job. Credit is
already tight, and it may get a lot tighter still.
5. Refinance your mortgage.
The panic on Wall Street just caused a collapse in the interest rate on
long-term US Treasury bonds, as lots of investors rushed there for
safety. And that usually leads to a fall in long-term mortgage rates.
6. Stop pulling a Monty Python when it comes to your worst investments.
If you ever saw John Cleese and Michael Palin perform their famous skit
about the dead parrot, you know exactly what I mean. No, your Fannie
Mae shares aren't "resting." They're lying at the bottom of the cage
with their feet in the air. What more do you need to know? So stop
waiting for them to "recover" before sorting out your portfolio.
7. Don't panic.Journalists, like markets, tend to move in herds. And by the nature of
their jobs they write about the plane that crashes instead of the
thousands that land safely. Remember, too, that pundits want to seem
really wise by putting on serious expressions and saying things like
"we don't know how this thing is going to play out," and "the situation
could get a lot worse". Bah. Guess what? We never know how things are
going to play out. And the situation could get a lot better too. That's
the future for you.
8. When it comes to your short-term money needs, nothing has changed.Any money you might need within the next year or two should be held in
cash or equivalents. That was true two years ago and it is true now.
The stock market is no home for money you may need urgently. It could
fall 30% or jump 30%. Nobody knows. You can get a one year CD paying 5%
right now, and it's federally guaranteed.
9. If you are investing for five years or more, buy some stock.The investment outlook is much, much better today than it has been for
several years, because shares are much cheaper. World markets overall
have fallen 27% from last year's peak. They're not a steal at current
levels but they are not particularly expensive either. Invest globally.
Vanguard Total World Stock gives you the whole world and low fees. If
you are looking for a value focus, Morningstar analyst Bridget Hughes
likes Oakmark Global. Another good one is Tweedy, Browne's new
Worldwide High Dividend Yield Value. The list is not comprehensive.
Remember: I am not trying to call the bottom of the market. Things
could fall quite a bit further ahead. No one knows. So only invest
little, often, and broadly.
10. If you want to worry about anything, worry about your taxes.The worse this crisis gets, the more they will end up putting the
taxpayer on the hook to prevent a meltdown. Taxes are going up sooner
or later anyway, no matter who wins the election, because of our
gigantic federal deficits. (If you think Lehman Brothers was bad, you
should look at Uncle Sam). And you can forget about any talk of tax
breaks. Oh, and if you want a break from worrying about taxes, worry
about Treasury bonds. Deficits won't do anything good for them.
Write to Brett Arends at brett.arends@wsj.com
Copyrighted, Dow Jones & Company, Inc. All rights reserved.
http://finance.yahoo.com/banking-budgeting/article/105753/10-Ways-to-Protect-Your-Finances-From-the-Crisis
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