Financially Get a Jump Start on 2017

office pictures may 2012 002The beginning of a new year is a good time to evaluate your finances and take steps to improve your financial situation.  Start by reviewing your living expenses and comparing them to your income.  Are you living within your means and spending money in areas that are important to you?  Look for opportunities to prioritize your spending where you will get the most benefit and joy.

This is also a good time to calculate your net worth to see if it has increased over the previous year and evaluate progress toward your goals.  To calculate your net worth, add up the value of all of your assets including real estate, bank accounts, vehicles and investment accounts and subtract all outstanding debts including mortgages, credit card balances, car loans and student loans.

With a better understanding of your net worth and cash flow you are ready to set some financial goals.  Start with the low hanging fruit including paying off outstanding credit card balances and establishing an emergency fund.  Maintain an emergency fund equal to at least three months of expenses.   Once your credit cards are paid off you may want to focus on paying off other high interest debt.

After paying off debt and creating an emergency fund, it’s advisable to get in the habit of saving at least 10% of your income.   Saving 20% may be a better goal if you are running behind on saving for retirement.

Take advantage of opportunities to defer taxes by contributing to your company’s 401k.  If you are self- employed create a retirement plan or contribute to an IRA.  Take advantage of any match that your employer may provide for contributing to your retirement plan.  If you are already making retirement contributions, evaluate your ability to increase your contributions.  If you have recently turned 50 you may want to increase your contribution to take advantage catch-up provisions that raise the contribution limits for individuals over 50.

As the new year begins you also may want to evaluate your career situation.  Saving and investing is just part of the equation, your financial security is largely dependent on career choices.  Look for opportunities to enhance your career that may result in a higher salary or improved job satisfaction.  It may be time to ask for a raise or a promotion or to explore opportunities in a new field.  Consider taking some classes to sharpen your skills for your current job or to prepare you for a new more exciting career.

You may have additional goals such as buying a new home, contributing to your children’s college fund, remodeling your house, or taking a big vacation.  Strategically think about your priorities and what will bring you satisfaction.  Start the year with intention, identify some impactful financial goals and create a plan.  Formulate an action plan with specific steps to help you meet your goals.

Selecting the Right Asset Allocation – Part 2

Jane Young, CFP, EA

Jane Young, CFP, EA

Your asset allocation is the basic structure of your investment portfolio defining the target percentage you want to hold in different categories of assets.   Start creating your asset allocation by deciding how much you want to invest in the two major categories, stock mutual funds and interest earning assets.  Next break your allocation down into more specific categories including cash, CDs, bonds, large cap stock, mid-cap stock, small cap stock, international stock, emerging markets stock and real estate.  Setting an appropriate, well diversified asset allocation helps you balance risk and return within your portfolio.  Your asset allocation may change over time as your financial circumstances change.  However, avoid changing your allocation too frequently based on short term fluctuations in the market.

The appropriate allocation depends on several factors including your age and investment time horizon, your financial goals, other risk factors in your life, your experience with investing and your emotional risk tolerance.  Regardless of your investment goals, you need to maintain an emergency fund of readily available funds equal to at least four months of expenses.

Your financial goals are a major determinant in setting your allocation.  Identify your major financial goals and when money is needed to support these goals.  Design an asset allocation to meet these goals.  Money needed in the short term should be held in safer, interest earning investments. The stock market should only be used for long term needs – generally at least five to seven years out.

You may be able to assume more risk in your portfolio if the timetable for your goals is flexible.  The timeframe for money to cover things like college education or your emergency fund may be firm but there may be some flexibility on when you take a major vacation, remodel your home or plan to retire.   Money needed for retirement is generally spent over twenty or thirty years.  You won’t need your entire nest egg on the first day.

Your allocation is also dependent on risks taken in other areas of your life.  For example, if you work in a volatile career with unpredictable earnings, own a small business or own rental property, you may want to reduce the risk in your investment portfolio. On the other hand, if you have a secure job and anticipate a generous pension, you may be comfortable taking more risk.

Regardless of your situation you need to feel emotionally comfortable with your allocation. If you are constantly worried about market fluctuations you may need a more conservative allocation.   Historically the stock market has trended upward, but there will be years with negative returns.  Create an allocation that gives you adequate emotional security to ride out swings in the stock market and helps you avoid selling when the market is down. If you are new to investing, start out slowly and test the water to see how you will react in a volatile market.

Smart Financial Moves for College Graduates

Jane Young, CFP, EA

Jane Young, CFP, EA

After finishing school and hopefully landing a rewarding job, college graduates face a myriad of financial obligations and opportunities.   Here are some steps for graduates to get started in the right direction.

Create a Budget and Live Below Your Means – Based on your income, create a spending plan that leaves you with a little extra money at the end of the month.  Your budget should include saving at least 10% of your gross income.  Spend less than you earn so you are prepared for unexpected bumps in the road.  Initially this may involve renting a smaller apartment, living with roommates or driving an older car.  As your career progresses, avoid increasing expenses in lock step with earnings increases.

Establish an Emergency Fund – With the money you are saving, build and maintain an emergency fund equivalent to 4 to 6 months of expenses.

Avoid Credit Card and Consumer Debt – Pay your credit card bill in full at the end of every month.  If you can’t afford to pay for your purchases when the bill arrives then postpone or re-evaluate the purchase.   Avoid or minimize debt on vehicles and other consumer purchases.

Payoff Student Loans – Devise a plan to payoff your student loans.  Consider consolidating or refinancing your loans if it will save you money.  Consider both the interest rate and the duration when evaluating loans.  Generally, you want to pay off student loans in less than ten years.

Buy Adequate Insurance – It’s essential to have good health insurance coverage; if you aren’t covered by your employer you may be eligible for continued coverage on your parents plan.  You will also need good car insurance and renters insurance on your apartment.  Additionally, consider long term disability insurance and an umbrella liability policy.

Contribute to Your Employers Retirement Plan – Many employers offer a 401k or 403b plan to help you   save for retirement using before tax dollars.  At the very minimum contribute up to the match that your employer may provide.

Contribute to a Roth IRA – Once you start earning money you can also save for retirement by contributing to a Roth IRA.  The benefit of a Roth is since you initially invest with after tax dollars, you don’t pay taxes when the money is withdrawn in retirement.   This is a tremendous opportunity for recent college graduates because your money can grow tax free for forty or fifty years.

Travel and Have Some Fun – While you’re young and relatively independent, set aside some money to explore the world or do something adventurous.  Once you buy a house, start a family or assume more job responsibilities it’s harder to get away.

Educate Yourself on Finances – Start reading personal finance books and articles.  Here are a few books to consider; “The Money Book for the Young, Fabulous and Broke” by Suze Orman, “Personal Finance for Dummies” by Eric Tyson, and “The Millionaire Next Door “ by Thomas J. Stanley and William Danko.

What to Do When You Lose Your Job

Jane Young, CFP, EA

Jane Young, CFP, EA

Breathe – Losing a job seems like a huge catastrophe when it happens, but it could free you up to pursue new opportunities.  Most jobs are lost due to a reduction in workforce, over which you have no control.   Try to move through this transition with grace.  It’s not personal;  try to avoid becoming sad, angry or bitter.    This process is difficult for everyone involved, and the person letting you go may be in a position to hire you in the future.

Carefully Review Your Severance Package – Make sure you fully understand and agree with the terms of your severance package.  Don’t hesitate to consult an attorney if you are unclear or disagree with the terms of your separation agreement

File for Unemployment – If you were laid off due to no fault of your own, you may be eligible for unemployment benefits.   Unemployment may not be available while you are covered by a severance package.

Review Your Budget – Review your expenses and cut-back on unnecessary expenses.  Develop a new spending plan that will help you cover expenses until you find a new job.   Hopefully, the combination of your emergency fund, severance pay and unemployment will cover your necessities until you find a new job.  To make ends meet, you may need to consider short term assignments or part time work.

Arrange for Health Insurance – Review options available through Cobra as well as insurance on your own.  If you are married, look at health insurance options through your spouse’s employer.

What’s Next?    You have just received the gift of freedom, to make a career change.  Do you want to continue in your current career or do you want to pursue something new?   How much training, education, time and money will it take to pursue your dream career?

 Update Your Resume and Start Job Hunting  – Update your resume and start looking for a new job.  Take advantage of services that may be offered by the outplacement firm hired by your previous employer.  If you decide to return to school, you may need to pursue a part time job while you re-tool.

Build and Nurture Your Network – Most jobs are found through word of mouth.  It’s essential to do a lot of networking.  Let all of your contacts know that you are job hunting and what you are looking for.  Actively maintain accounts on Facebook, Linked In and Twitter to help you with your job search.  It’s also advisable to have personal business cards made so potential employers can reach you more easily.

Use Your Time Wisely – Treat looking for a job as a job.   After a week or so, you should keep your days structured.  Spend your time working toward getting a new job, getting your life organized and taking care of your health.  This is a very stressful time, be sure to eat well and get plenty of exercise.

Protect Your Family Against a Loss of Income

Jane Young, CFP, EA

Jane Young, CFP, EA

In addition to an emergency fund for unexpected short term expenses, you need to protect yourself and your family from a long term loss of income.  If you have a spouse or children who are dependent on your income, you should consider term life insurance and long term disability to provide them with income should you die or become disabled.  If you have no dependents, you should consider long term disability to cover your own living expenses if you become unable to work.  

Although, life insurance can be a dirty word, low cost level term insurance is relatively inexpensive and provides an important safeguard for those who are dependent on your income.  Some common reasons to buy life insurance are to replace income, pay-off a mortgage, and to put your children through college.  The most economical way to meet these needs is through the use of level term insurance.  The amount of insurance you need depends on your objectives for getting insurance.   The term of the insurance should be based on the timeframe during which you need to replace income or pay for other major expenses.   When you buy level term insurance, you have a guaranteed level premium and a guaranteed death benefit, assuming you pay your premiums on time. Unlike whole life insurance, term insurance is pure insurance, there is no investment element.  Once the term has expired there is no residual value. 

It is common to buy level term insurance to cover 20 or 30 years until such time the kids have made it through college or your home is close to being paid off.  To save money, you may consider purchasing several policies with different terms and different objectives. For example, if your mortgage will be paid off in ten years, your kids will be out of college in 20 years and you want to provide your spouse with income replacement for 30 years, buy three policies with terms that correspond with the timeframes of your objectives.

Many people buy life insurance but few people have long term disability insurance.  No one lives forever, but during your prime earning years the probability of becoming disabled is higher than that of dying.  According to the Social Security Administration, over 1 in 4 people who are currently 20 years old will become disabled before age 67.   About 69% of all private sector employees have no long term disability insurance.  If you have loved ones who are dependent on your income, you should consider buying long term disability insurance.

When shopping for life insurance and long term disability shop and compare prices. Do your research and get quotes from several companies with low fees and commissions.  Consider working with insurance brokers who work with a variety of different insurance companies.  They can provide you with information on premiums from several insurance companies along with the companies’ financial strength rating.

Financial Pitfalls to Avoid

Jane Young, CFP, EA

Jane Young, CFP, EA

Below are some common pitfalls that I have observed over the last seventeen years as a financial planner.  You may have a smoother journey toward reaching your financial goals if you can avoid some of the hazards along the way.

Living Beyond Your Means – Take the time to review your monthly expenses and compare them to your income.   Establish a budget where you spend less than you earn.  A good way to deal with unforeseen financial issues is to always save at least 10% of your income and avoid unnecessary debt.

No Emergency Fund – Everyone should maintain an emergency fund of at least three months of expenses.  This should be higher if you don’t have a lot of job security or your income fluctuates.  Without an emergency fund, large unexpected expenses can quickly throw you into a negative debt spiral.

Too Much Debt – Avoiding debt is a mindset.  There is good debt and bad debt – it may be wise to secure a low interest, tax deductible mortgage when purchasing a home.  This enables you to start building equity and reap the benefit of appreciation as the value of your home increases.  However, it is generally not advisable to finance personal items such as furniture and appliances.  If you can’t pay cash, you should probably wait and save up for the purchase.   Avoid credit cards if you can’t pay off the entire balance at the end of the month.  

Overspending on Vehicles – Financing the purchase of a new vehicle can negatively impact your monthly budget.  I have seen clients and friends take on car payments in excess of their home mortgage.  Vehicles are depreciating assets and they are not a good investment.  When possible you should buy a used vehicle and save your money to purchase your car with cash.  Unless you have a lot of disposable income, minimize your vehicle expenses and buy with functionality in mind.

Putting Kids Through College at the Expense of Retirement – I know you love your kids and you want to give them a good start in life but don’t sacrifice your retirement.  There are many ways to minimize college expenses and finance a college education.  You can’t take out a loan to finance your retirement.

Get Rich Schemes – I’ve heard them all – every few months someone will ask me about some new product or investment scheme that promises low risk, double digit returns.  There is no free lunch, if it sounds too good to be true, it is! 

Emotional Reaction to Movements in Market – Stocks are long term investments, you need to be willing and able to ride out the fluctuations in the market.   Over long periods of time, the stock market has trended upward; however, there will be periods with negative returns.  Avoid the natural tendency to react emotionally to market downturns.  Stay the course and follow your long term plan.

Here Are Three Simple Secrets to Investment Success

Jane M. Young, CFP, EA

Build a Portfolio to Support Your Investment Timeframe

Investment timeframe is a major consideration in developing an investment portfolio.  Start with an emergency fund covering about four months of expenses in a cash account with immediate access.  Next, put aside money that is needed over the next few years into fixed income vehicles such as CDs, bonds or bond funds.  Invest long term money into a combination of “stock based” mutual funds and fixed income investments based on your tolerance for investment risk and volatility.  Historically, stock has significantly out-performed fixed income investments but can be volatile during shorter timeframes.  Stock is a long term investment; avoid putting money needed within the next five years in the stock market.

Diversify, Diversify, Diversify

Once your emergency fund is established and funds have been put away for short term needs, it’s time to create a well-diversified investment portfolio.   We cannot predict the next hot asset class but we can create a portfolio that will capitalize on asset categories that are doing well and buffer you from holding too much in asset categories that are lagging.  Think of the pistons in a car, as the value of one asset is increasing the other may be falling.  Ideally, the goal of a well-diversified portfolio is to have assets that move in opposite directions, to reduce volatility, while following a long term upward trend.  It is advisable to diversify based on the type of asset, investment objective, company size, location and tax considerations.

Avoid Emotional Decisions and Market Timing

The best laid plans are worthless if we succumb to our emotions and overreact to short term economic news.  Forecasting the short-term movement of the stock market and trying to time the market is fruitless.   We can’t control or predict how the stock market will perform but we can establish a defensive position to deal with a variety of outcomes.  This is accomplished by maintaining a well-diversified portfolio that supports our goals and investment time horizon. 

The stock market can trigger our emotions of fear and greed.  When things are going well and stock prices are high we become exuberant and want a piece of the action.   When things are bad and stock prices are low we become discouraged and want to get out before we lose it all.  The stock market is counterintuitive, generally the best time to buy is when the market is low and we feel disillusioned and the best time to sell is when the market is riding high and we feel optimistic.  We need to fight the natural inclination to make financial decisions based on emotions.   Don’t let short term changes in current events drive your long term investment decisions.

No one knows what the future holds so focus on what you can control.  Three steps toward this goal are to create a portfolio that meets your investment time horizon, create and maintain a diversified portfolio and avoid emotional decisions and market timing.

 

 

10 Financial Planning Tips to Start 2012

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Jane M. Young, CFP, EA

 

1. Dream – Take a few minutes to look at the big picture and think about what you want from life. How do you want to live, what do you want to do and how do you want to spend your time. Successful businesses have vision statements and strategic plans. Create your own personal vision statement and strategic plan.

2. Set Goals – What are your goals for the coming year? Start by brainstorming – fill a page by listing all the goals that come to mind. Think about different facets of your life such as family, career, education, finance, health and so forth. Review your list and prioritize three or four goals to focus on in the coming year.

3. Evaluate Your Current Situation – What did you spend and what did you earn last year? What was necessary and what was discretionary? Did you spend in a purposeful manner and do your expenses support your goals and strategic plan. How much did you save or invest in a retirement plan? Can you increase this in 2012? If you are like most of us, a category is needed for “I have no clue”.

4. Track Spending and Address Problem Areas – If you aren’t sure where you spent all that discretionary cash, track your expenses for a month or two. It can be very enlightening – Yikes! Identify a few problem areas where you can cut spending and really place some focus. Identify the actions you will take to cut spending in these areas. Set weekly limits and come up with creative alternatives to save you money.

5. Evaluate Your Career – Are you doing what you really want? Are you being paid what you are worth? Have you become too comfortable that you are settling for safe and familiar? Could you earn more or work in a more rewarding position if you took the time to look? Are you current in your field or do you need to take some refresher courses? Do you know what it will take to get a promotion or a better job? In this volatile job market you need to keep your skills current, to nurture your network and to maintain a current resume.

6. Maintain an Emergency Fund – Start or maintain an emergency fund equal to at least four months of expenses, including the current month. This should be completely liquid in a checking, savings or money market account.

7. Pay Off Debt – Establish a plan to pay off all of your credit card debt. Once this is paid off establish a plan to start paying off personal debt and student loans.

8. Save 10-15% of your income (take advantage of employee Benefits) – You need to save at least 10-15% of your income to provide a buffer against tough financial times and to invest for retirement. At a very minimum, you need to contribute up to the amount your employer will match. Additionally, be sure to take advantage of flex benefits or employee stock purchase plans that may be offered by your employer.

9. Maintain a Well Diversified Portfolio – Maintain a well-diversified portfolio that provides you with the best return for your risk tolerance, your investment goals and your investment time horizon. Be sure to re-balance your portfolio on an annual basis. Avoid over reacting to short term swings in the market with money that is invested for the long term.

10. Don’t Pay Too Much Income Tax – Avoid paying too much income tax. Get organized and keep good records to be sure you are maximizing your deductions. Make tax wise investment decisions, harvest tax losses and maximize the use of tax deferred investment vehicles. Donate unwanted items to charity – be sure to document your donations with a receipt.

Stay The Course! Ten Steps to Help You Through Uncertain Financial Times

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Jane M. Young, CFP, EA

1. Don’t react emotionally! This will result in a constant cycle of buying high and selling low. Once you sell, you lock in your losses. Stay the course and focus on what you can control.

2. Make sure you have an emergency fund of three to six months of expenses.

3. Evaluate your asset allocation to be sure it is consistent with the timeframe in which you need to withdraw money. The stock market is a long term investment; you should never have short term money in the stock market. Make adjustments to your allocation based on your long term goals and need for liquidity not on fear.

4. Maintain a well diversified portfolio.

5. Pay-off credit cards and high interest consumer debt. Be wary of variable rate loans, lines of credit and mortgages. The downgrade in the U.S. credit rating could hasten an increase in interest rates.

6. Get your personal finances in order. It’s always a good idea to understand your spending and keep expenses in line with your income and financial goals. This is a good time to tighten your belt to be prepared for unexpected emergencies.

7. Use dollar cost averaging to invest new money into the stock market. Volatility in the stock market creates great buying opportunities.

8. Don’t get caught up in the media hype. They are in the business to sell newspapers, magazines and television commercials. Avoid the new hot asset class they are trying to promote this week. Sound investment advice is boring and doesn’t sell newspapers.

9. Take steps to secure or improve your income stream. Are you performing up to speed at work? Are you getting along with co-workers? Should you take some classes to keep your skills current? Are you underemployed or under paid for your education and experience? Consider a second job to pay down excess debt.

10. Stay calm, be patient and focus on making sure your financial plan meets your long term goals and objectives. Stay the course, this too shall pass.

10 Tips for Financial Success

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Jane M. Young CFP, EA

1. Set Goals –
Review your personal values, develop a personal strategic plan, establish specific goals for the next three years and identify action steps for the coming year.

2. Understand Your Current Situation –
Review your actual expenses over the last year and develop a budget or a cash flow plan for the next 12 months. Compare your expenses and your income to better understand your cash flow situation. Are you’re spending habits aligned with your goals? Can or should you be saving more?

3. Have sufficient Liquidity –
Maintain an emergency fund equal to at least four months of expenses in a fully liquid account. Additionally, I recommend having a secondary emergency fund equal to another three months of expenses in semi-liquid investments. Increase your liquidity if you have above average volatility in your life due to job instability, rental properties or other risk factors.

4. Always save at least 10% of your income –
Regardless of whether you are saving to fund your emergency fund or retirement you should always pay yourself first by saving at least 10% of your income. Most of us need to be saving closer to 15% to meet our retirement needs.

5. Pay-off Credit Cards and Consumer Debt –
Learn the difference between bad debt (credit cards) and good debt (fixed-rate home mortgage). Avoid the bad debt and take advantage of the leveraging power of good debt.

6. Take Advantage of the Leveraging Power of Owning Your Home –
Once you have established an emergency fund and have paid off your bad debt start saving for a down payment to purchase your own home.

7. Fully Fund Your Retirement Accounts be a tax smart investor –
Participate in tax advantaged retirement programs for which you qualify. Maximize your Roth IRA and 401k contribution take full advantage of any company match on your 401k. If you are self-employed consider a SEP or Simple plan. Always select investment vehicles that provide the most beneficial tax solution while meeting your investment objectives.

8. Be an Investor, Not a Trader. Don’t time the market and don’t let emotions drive your investment decisions –
Investing in the stock market is a long term endeavor, forecasting the short-term movement of the stock market is fruitless. Avoid emotional reactions to headlines and short-term events. Don’t overreact to sensationalistic journalists or chase the latest investment trends. You can establish a defensive position by maintaining a well diversified portfolio custom tailored to your unique situation. Slow and steady wins the race!
“Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”  -Peter Lynch, author and former mutual fund manager with Fidelity Investments

9. Don’t Invest in anything you don’t understand and be aware of high fees and penalties –
If it sounds too good to be true and you just can’t get your head around it, don’t invest in it! If you want to invest in complicated products, read the fine print. Be aware of commissions, fees and surrender charges. Be especially wary of products with a contingent deferred sales charge. There is no free lunch, if you are being promised above market returns there is probably a catch. Keep in mind that contracts are written to protect the insurance or investment company not the investor.

10. Diversify, Diversify, Diversify – rebalance annually –
It is impossible to predict fluctuations in the market or to select the next great stock. However, you can hedge your bets by maintaining a well diversified portfolio. Establish an asset allocation that is aligned with your goals, investment timeframe and risk tolerance. You should have a good mix of fixed income and equity based investments. Your equity investments should be spread over a wide variety of large, small, domestic and international companies and industries. Re-balance your portfolio on an annual basis to stay diversified and weed out any underperforming investments.

10 Investment Principles that Never Go Out of Style

Jane M. Young CFP, EA

Frequently people talk about how everything is different and we should change the way we invest. Yes, we have just experienced a very difficult year with some major changes in our economic situation. However, every time we go through a major market adjustment if feels like “this time is different”. We could take numerous comments made at the end of the last bear market and insert them into today’s headlines without missing a beat. I call this the “recency effect”; bad times always feel more desperate while we are experiencing them. We need to step back and look at the big picture; don’t throw the baby out with the bathwater. Good, sound investment fundamentals are still valid. Some people may reassess their tolerance for risk, start saving more money or cut back on their discretionary spending – but the following investment principals are good, time tested guidelines that everyone should follow in any market.

1. Don’t time the market – The stock market is counter-intuitive. Generally, it may be better to invest when things seem most dire and sell when everything is rosy. It is impossible to predict the movement of the stock market and history shows that those who do frequently miss out on big upswings.

2. Dollar Cost Average – This enables you to invest a set dollar amount every month or every quarter regardless of what the market does. As a result you buy more shares when the price is low and fewer when the market is high. Dollar cost averaging helps you mitigate risk because we don’t know what the stock market is going to do tomorrow.

3. Maintain at least 3 to 6 months of expenses in an emergency fund – This is especially important in difficult financial times when stock market values are low and unemployment is high. Unless you have a very secure job I currently recommend a 6 month emergency fund.

4. Don’t invest in anything you don’t understand – If you just can’t get your head around something after it’s been explained or you have done a reasonable amount of research don’t invest in it. If an investment opportunity is overly complicated something may be rotten in Denmark.

5. Don’t Chase Hot Asset Classes – Today international funds may be skyrocketing and tomorrow it may be small cap domestic stock funds. Don’t forget what happened to the stock market after the dot.com bubble burst.

6. Diversify, Diversify, Diversify – Everyone needs to diversify with a mix of fixed income and equity investments that is consistent with their own unique investment goals and objectives. Although most stocks dropped in unison over the last year, I still think there is value in diversifying between different types of stock mutual funds. I believe we will see some categories of stocks outpace others as the market rebounds. Depending on your risk tolerance, a small allocation in commodities and real estate may be advisable.

7. Don’t Make Emotional Decisions – Many investment decisions are triggered by fear and greed and they are equally damaging. Don’t make rash decisions based on emotion. Remember the stock market is counter-intuitive.

8. Don’t put more than 5% of your assets in one security – Any given company can go bankrupt as we have seen with many financial and automobile firms over the last year. I encourage the use of mutual funds over individual stocks to help mitigate this type of risk. If you do invest in individual stocks don’t put too much faith in any one company. If you are investing in your own company and you have a strong understanding of the firm’s performance you could go up to 10%.

9. Be tax smart – Take advantage of tax advantaged retirement plans such as Roth IRAs and 401k plans. Consider tax consequences when re-balancing your portfolio. Use a bear market to harvest some tax losses and off-load some bad or inappropriate investments.

10. Be aware of fees and surrender charges – When selecting investments be aware of high fees and commissions. Tread cautiously with anything that contains a contingent deferred sales charge. Many clients have come to me with a desire to sell or transfer previously purchased investments, usually annuities, only to find they have a 5-10% surrender charge if they sell within ten years of purchase. A surrender charge can have a big impact on your flexibility. If you really want a variable annuity buy one with low fees and no surrender charges.

What You Should Be Doing Now!

Jane M. Young CFP, EA

1. Start by re-evaluating your monthly expenses to determine how much money you need for necessary expenses. Then determine how much you have remaining after you cover these expenses.

2. During difficult economic times, like the present, most people should maintain an emergency fund of at least 6 months of expenses. If you have an exceptionally secure job you may be able to drop it down to 3 months. Always be sure to sure to maintain an adequate emergency fund.

3. Once your emergency fund is established pay off any high interest credit cards.

4. Put aside money for special one time expenses such as a new roof, a new car or a down payment on a house. If you don’t own your own home give some serious consideration to saving up to buy one. Decide how much you want to save on a monthly basis and start a systematic savings plan.

5. Now you can start investing! Determine how much you can afford to invest on a monthly basis. Most people should start by investing in their company retirement plan up to the level that the company will match. If you can afford to invest beyond the level of your company match, invest up to the maximum allowed in a Roth IRA. This should be done on a monthly basis to take advantage of dollar cost averaging – investing the same amount every month. The 2009 contribution limit for a Roth IRA is $5,000 if you are under 50 and $6000 if you are over 50. There is an income limit on your eligibility to contribute to a Roth IRA based on your adjusted gross income. For 2009, your eligibility to contribute begins to phase-out at $166,000, if you are married filing jointly and $105,000 if you are single.

If you still have money to invest after maximizing your Roth IRA, resume contributing to your company retirement plan up to the maximum amount. The maximum contribution limit for a 401k in 2009 is $16,500 if you are under 50 and $22,000 if you are over 50.

Invest your money in a diversified set of mutual funds. Establish an asset allocation consistent with your timeframe and risk tolerance. For most individuals this will vary from 50% to 80% in stock mutual funds, with the balance in fixed income investments. The market is still priced very low and it is a great time to buy stock mutual funds. However, the market will be very volatile over the next 6 – 9 months. Dollar cost averaging into your retirement plans will help you take advantage of this volatility.

This is very general advice and everyone’s situation is unique. Treat this advice as a general guideline and adapt it to your own situation or consult a Certified Financial Planner for guidance.