Sunday, January 27, 2008

Common Sense Strategies to Survive a Down Market

Are you ready?
Common Sense Strategies to Survive a Down Market

"The probability of recession is probably 50 percent or maybe slightly more, but we're not there yet,"
BusinessWeek - Alan Greenspan

Are we in a recession or going to be in one? That is the prominent question being debated today by financial analysts, bankers, economist, politicians and folks like you and me. It is doubtful anyone knows the answer when you consider that less than six months ago we were in a soft landing mode with the fed more worried about inflation, the pundits talking about decoupling and bullish forecasts being projected for 2008.

So instead of worrying about will be have a recession - consider how to position yourself to manage the coming tough times.

"Economists and politicians can debate all they want about whether the nation is sliding into its first recession in nearly seven years. To Chuck Rizzo, the picture is clear.

Rizzo was recently laid off from his customer service job at a homebuilder in Sarasota, Fla. His grocery bill is higher nowadays, and he can barely afford his mortgage payments."
Washington Post - Is a Recession on the Way?

Financial Strategies
Emergency Fund: A financial cushion is a must for times likes these. Liquid assets, which can sustain your lifestyle for six months should be top priority. If you have an option to squirrel away some money into a high yield savings account - this is the time to seriously consider starting to build that emergency fund. Tax rebates, bonus payments and any other extra income should be funneled into this fund.

Saving or Buying: Federal rate cuts will mean lower interest rates on high-yield savings accounts and CDs. If you are seeking higher return on your money and can afford to invest it for a long duration - this is the time to be looking for bargains in the stock market. Stock market volatility is high and it may get a lot worse before it gets better so if you are seeking short-term income - equities may not be for you.

Spending Squeeze: This is the time to put the brakes on spending. Non-essential purchases should be shelved for six months to a year. If you can - postpone that exotic vacation for a while or consider a less expensive vacation in 2008. Frugal living strategies like grocery coupons, conserving energy and gas, brown bagging lunch, skipping some indulgences like gourmet coffee - can add up.

Staying Put: If you can afford to this is not the time to be switching houses. The builder may be throwing a significant discount on the new build but you will also have to content with a slumping housing market when your house goes on the market.

Buy or Refinance: This is the time to be considering buying a house if you are a first time homebuyer. This is a buyers market and from new builds to existing houses - choices galore. With the fed slashing interest rates - mortgage rates are also going lower. 30 year fixed is at levels not seen since 2004 and refinancing a high interest loan can significantly lower your monthly payment.

"Fixed-rate mortgages are within shouting distance of what they were during their 40-year lows," Mr. Gumbinger says. The average conforming 30-year fixed loan was 5.55% as of Thursday, down from 6.4% shortly after the Fed's first rate cut in the fall.
WSJ - What Lower Rates Mean for You

Job Market
Being Marketable: Unemployment is edging up and as corporate profits get pressured - the employment picture may worsen. To survive a down market, focus on "marketable skills". Invest in training, networking and exploring the market. Finding a job can easily take six months on average so it pays to be ready.

Think Sector: Some economic sectors and jobs associated with that sector are more affected during a recession than others. Housing, retail, construction and manufacturing are usually adversely impacted. If you are in these industries or are seeing signs of layoffs or workforce impacts - consider other sectors, companies and different job opportunities.

Finally - readiness is the key to facing tough economic times. If we miss the severe downturn, some are predicting you will come out ahead. If we hit a rough patch - you will be more than ready to ride it out. Buckle your seat belts, turbulence ahead!

CNN Money - Recession-proof Your Life - Surviving 2008 for the Middle Aged - Recession? What Recession?

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TheLocoMono said...

Great post, not only should it be limited to down markets, it should be applied to up markets as well. Eventually there will come a time when you don't want to be part of the market, retirement. The question is whether you want it to happen sooner or later.

Thank you for contributing to the Common Sense Wealth Carnival #5. I have selected it as an Editor's Pick.

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Sudipta Das

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