Survival tips for an unstable market

Published 2:59 pm Friday, February 6, 2009

Recent economic events have caused quite a shake-up in the stock market.

If you are on track to retire or if you are already there, you can learn a few lessons from financial planners to keep on track and afloat in these less-than-stable times.

First of all, cash is your friend. Though interest rates are low, keeping part of your portfolio in a cash-equivalent account is a wise choice. The money you forfeit due to low interest rates just might be worth it when you are not forced to liquidate your stocks and other funds in hard times.

A financial planner in Pennsylvania, Michael Garry, suggests that cash should make up 5 percent of portfolios.

“That amount more than covers a year’s worth of withdrawals taken at the 4 percent annual rate many financial planners consider the max for people who do not want to risk outliving their money.”

Secondly, rethink your opinion of bonds.

If you share in the typical view that bonds are no fun and do not provide great investment returns, this stock market crisis is bound to help you reconsider.

Garry suggests that 45 percent of portfolios of retirees should be invested in bonds.

“That means that after the 5 percent cash mentioned earlier runs out, they could go another 11 years or so before tapping the stock portion of their investment portfolios.”

Next, get in the mindset of spending less.

In times like these, such a mindset is important for everyone. Moreover, it can help you postpone or eliminate a need to sell portions of your portfolio.

See if you can reduce the number of your small expenses as well as delay some of the larger ones. If you do not spend your money right now, that money is being saved. The best possible way to keep your spending in check, however, is to “stay out of stores.”

Lastly, do not do anything drastic!

If you have planned properly, your plans have taken times like these into consideration. So, even if you are taking out the max amount (4 percent a year), hold off on making any changes to your portfolio allocations. Should you move all your stock investments to bonds, you run the risk of not having enough money later on down the road. And if you absolutely must do something for your peace of mind, sell just a small portion of your stocks as opposed to the whole thing.

Market declines are inevitable in the investment world, and hopefully this one will make a speedy recovery. And when the market does recover, it will benefit us to remember this in the future.