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AAII Making the Most of Your Money May 16, 2009 Jonathan Pond. Safe Money in Tough Times The Key to Financial Success. Never take financial responsibility for anything that eats. Safe Money in Tough Times. This time it’s different Predicting the future is perilous

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safe money in tough times the key to financial success
Safe Money in Tough TimesThe Key to Financial Success
  • Never take financial responsibility for anything that eats
safe money in tough times
Safe Money in Tough Times
  • This time it’s different
  • Predicting the future is perilous
  • Some things are predictable:
    • We’ll get out of the doldrums
    • Some will emerge better off than others
safe money in tough times1
Anybody who says there’s safety in

numbers hasn’t looked at the stock market pages.

Irene Peter

Safe Money in Tough Times
safe money in tough times2
Safe Money in Tough Times

Talking to politicians about the economy is like talking with eight-year-olds about sex.

They have heard all the words, but they haven't a clue.

Michael Aronstein

safe money in tough times concerned about the health of your credit union or bank
Safe Money in Tough TimesConcerned About the Health of Your Credit Union or Bank?
  • Deposit accounts are protected
  • If institution fails, you will usually have access to your money within a day
safe money in tough times concerned about the health of your insurance company
Safe Money in Tough TimesConcerned About the Health of Your Insurance Company?
  • Healthy insurance companies usually take over the policies
  • State insurance funds offer some protection
safe money in tough times advice for homeowners
Safe Money in Tough TimesAdvice for Homeowners

Why did you buy a house, anyway?

  • Your house will still turn out to be a wonderful investment
  • If you’re having trouble keeping up with your mortgage…
  • If you have to sell now…
safe money in tough times advice for home buyers
Safe Money in Tough TimesAdvice for Home Buyers
  • Your timing is impeccable
  • Don’t wait around for the perfect time
  • Spiff up your finances
safe money in tough times when is it worthwhile to refinance a mortgage
Safe Money in Tough TimesWhen is it Worthwhile to Refinance a Mortgage?
  • 1% lower rate if you have a fixed rate mortgage
  • If you have a variable rate, consider a fixed mortgage now
  • Don’t refinance over a longer period
safe money in tough times3
Safe Money in Tough Times

If medical science continues to prolong human life, some of us may eventually pay off the mortgage.

Anonymous

safe money in tough times it s time to get your debt under control
Safe Money in Tough TimesIt’s Time to Get Your Debt Under Control
  • Don’t follow the government’s example.
  • Never borrow to buy a depreciating asset
  • Avoid adding to debt
safe money in tough times what to do with your investments now
Safe Money in Tough TimesWhat to Do With Your InvestmentsNow…
  • Avoid any big moves
  • Check your diversification
safe money in tough times the way you should invest depends on
Safe Money in Tough TimesThe Way You Should Invest Depends on…
  • When you’re going to start needing the money
  • How long the money is going to have to last
safe money in tough times the way you should invest
Safe Money in Tough TimesThe Way You Should Invest…

Example 1: You’re going to buy a house in four years

  • Need money in four years
  • All will be used in four years
  • Most of the money should be kept in safe investments like CDs
safe money in tough times the way you should invest1
Safe Money in Tough TimesThe Way You Should Invest…

Example 2: College savings needed in four years

  • Need to tap into money in four years
  • Money will be needed for four years thereafter
  • Invest primarily in safe securities with some money in stocks
safe money in tough times the way you should invest2
Safe Money in Tough TimesThe Way You Should Invest…

Example 3: You’re going to retire in four years

  • Need to tap into money in four years
  • Money will be needed for 25 or more years thereafter
  • Invest in both stocks and interest-earning securities - retirees need both income and growth to meet rising living costs
safe money in tough times4
Safe Money in Tough Times

I’ve got all the money I’ll ever need if I die by four o’clock.

Henny Youngman

safe money in tough times the problem with throwing in the towel
Safe Money in Tough TimesThe Problem with Throwing in the Towel
  • When the stock market recovers, it does so very quickly
  • Those who abandon or greatly reduce stocks have trouble deciding when to get back in.
safe money in tough times investment advisory
Safe Money in Tough TimesInvestment Advisory
  • Many mutual funds have seen their values decline much more than the averages.
  • So this is a good time to review the performance of your mutual funds to weed out any weaklings
  • One source for performance information is www.reuters.com
safe money in tough times 401 k and 403 b reminder
Safe Money in Tough Times401(k) and 403(b) Reminder
  • Most workplace retirement plans offer more stock fund choices than bond and stable value choices
  • This can lead many plan participants to have a very high percentage in stocks
safe money in tough times5
Safe Money in Tough Times

The only sure way to accumulate what you need to achieve financial security is to save regularly and regularly increase the amount you’re saving

safe money in tough times there is a silver lining amidst the stock market clouds
Safe Money in Tough TimesThere is a silver lining amidst the stock market clouds:
  • If you’re contributing to your investment accounts regularly, you’re benefiting from dollar cost averaging.
  • Dollar cost averaging is a winning investment strategy.
safe money in tough times6
Safe Money in Tough Times

My problem lies in reconciling my gross habits with my net income.

Errol Flynn

safe money in tough times safest places for money you re going to need in a few years
Safe Money in Tough TimesSafest Places for Money You’re Going to Need in a Few Years
  • CDs
  • Savings accounts and money market accounts
  • U.S. Treasury securities and money market funds that invest in U.S. Treasury securities
  • If you’re willing to take a little risk…
safe money in tough times preparing for the better times ahead
Safe Money in Tough TimesPreparing for the Better Times Ahead
  • Stock market rebounds before clear signs of economic improvement
  • Improvement in the housing market is key
  • Those who wait will be too late
safe money in tough times what s the bullish case for u s stocks
Safe Money in Tough TimesWhat’s the Bullish Case for U.S. Stocks?
  • Long-term trend has always been up
  • Many smart investors are buying stocks now
safe money in tough times7
Safe Money in Tough Times

The time to buy is when blood is running in the streets.

Baron Nathan Rothschild

safe money in tough times what s a reliable signal to get back in the stock market
Safe Money in Tough TimesWhat’s a Reliable Signal to Get Back in the Stock Market?
  • There is no reliable signal
  • Stock prices rise before there are clear indications of improving conditions
  • Best strategy is to graduallyadd to your stock holdings
safe money in tough times your to do list
Safe Money in Tough TimesYour “To Do” List
  • Find out where you stand, but…
  • Avoid taking any precipitous action
  • Don’t look in the rearview mirror
  • A decade from now, 2008 and 2009 will be just an unpleasant memory