Does anybody feel like the 2008 stock market crash has been one of the worst ever? Unfortunately, the crash in 2008 was the first collision and 2009 started with another rear ending when you thought the wreck was over. Luckily, we’re seeing the beginning of a recovery, but whiplash is not easy to overcome. Especially, investor whiplash. If you feel that the the market turmoils are like a severe car wreck, it leads us to wonder how to rehab our way back from such a serious injury.
As you may know, effective rehab is simple and repetitious. The improvements are almost imperceptible and the real benefit is only recognizable in hindsight, often six, twelve, or more months later, when the limp you had is just a memory.
For those that feel like the recent stock market crash has left you with more than just a simple limp, here are some pointers that can keep you going as the market attempts to figure itself out.
Continue Funding IRAs and 401k’s
Yes, I know that sounds insane considering how ugly the market is right now, but you have to have some faith in the U.S. economy. Just because I’m suggesting to fund your retirement accounts doesn’t mean you have to put in all in the market. You will want to at least fund your retirement accounts to either get the 401k match or the tax free savings of the Roth. Even if it’s invested into bonds right now, you’ll be able to transition to stocks later on when you feel more comfortable.
Make Roth Conversions Now or in 2010
If you’ve been wanting to get money into a Roth IRA, now might the opportunity. If your AGI is below $100,000, you are able to convert traditional IRA’s and old 401k’s this year. If not, you’ll have to wait until the 2010 Conversion event. Why is this time to do it? You’ll pay less tax because most likely your account balances are down (whose isn’t, right?) and you’ll have less of a tax liability on the amount to convert. If you have to wait until 2010, the one upside is that you’ll be able to spread the tax over a two year period.
Don’t Put All Your Eggs in One Basket…..Right?
Is diversifying really dead? There is no question that even a well diversified portfolio took a substantial hit over the past 6 months. But what about asset classes other than stock and bonds? There are other asset classes that produced double digit gains last year, showing that it makes sense to diversify with other assets than just stock and bonds.
*A quick break for compliance……There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does insure against market risk.
Review Your Retirement Plan
Face it, things change and you have to adapt and overcome. If you had a well thought out retirement plan last year, it needs to be revisited. A lot has changed in a short amount of time and you need to act accordingly. It’s not time to panic, but you need to be proactive in what is going on around you. Don’t let an opportunity pass you by that could make a serious impact to your retirement plan.
Put Money to Work.
I know that almost seems impossible nowadays. The stock market loses one hundred points every other day it seems and money market rates are dropping just as fast. But even still there are opportunities to take advantage of. If your 401k has a match, keep putting in and get your free money. If you have a credit card with a 8.9% APR (example), pay it off and you just made 8.9% on your money. Maybe you have a significant amount in your checking or savings accounts and you are only earning 0.25% (Yes, I’ve seen it that low), consider finding an institution that gives you the most bang for the buck (make sure they are FDIC insured). It may only pay you 1.5%, but you’ve still increased your payout by 6 times.
It all sounds simple, but these are the kinds of simple things we can do to get us on track back to financial health. What about you? What are your plans to recover from the crash?
photo by chitofran
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult with a financial planner prior to investing. All performance referenced is historical and is no guarantee of future results.
Securities offered through LPL Financial, Member FINRA/SIPC