Don't Panic!

“The best defense in these interesting economic times is to do nothing out of panic.” So says Brent Neiser, a certified financial planner and director with the National Endowment for Financial Education. “People react emotionally without information about situations that apply to them.”   Neiser believes that with the financial markets looking like a roller coaster, many investors are now considering cutting their losses and racing to the sidelines. And then they will wait until the market hits bottom and starts to go in the other direction. I have heard the same tactic being employed by many of my friends. Of course, the reply from me usually is, when will you know when you hit bottom?”   Neiser warns that unless you actually must have the money for a child’s college tuition or to purchase a “must do” big ticket item like replacing a car that has died on you, he feels the best bet is to continue investing in your 401(k) plan, at least up to the company match threshold. “That’s free money. Take it unless you absolutely can’t afford to.”   Neiser also advises that keeping about three to six months of ready cash to cover expected circumstances is a good idea. “You don’t want to be selling investments as the market is going down just to pay the mortgage or put food on the table.” That’s why he recommends putting cash in a money market to even a checking account to keep the cushion safe from market swings. In other words, keeping yourself liquid, and not to make any major changes in your portfolio.   As to credit card debt, Neiser believes that while it may be important to pay yourself first, as the old adage goes, why would you continue paying 18 percent interest rates on unsecured debt while you earn just two percent on your savings? “Pay off your plastic and get rid of them.”   He also feels that this is the perfect time to check how you are protecting your assets through automobile, home, life, disability, and health insurance policies. He points out that it might be better taking higher deductibles and putting the savings from lower insurance premiums into a dedicated “insurance deductibles” savings account. Even if nothing happens, you at least have an account with money in it. And should something unforeseen happen, you have money to help cover the increased deductible.   For more tips, you might want to visit www.smartaboutmoney.org. Also, to learn more about the National Endowment for Financial Education and how they can help people acquire the knowledge and skills necessary to take control of their financial destiny, visit www.nefe.org.