By Dixon Bledsoe
This is a volatile economic time. The public is scared, government and financial officials seem to be pointing blame at others and there’s no clear way out of the situation.
In trying to understand the issue and to plan for the future, straight talk in easy-to-understand terms is more welcome than ever.
Investment
Certified Financial Planner™ Angela Fischer, with Roberts Financial Group in Silverton, was asked what she would tell people thinking of investing or wanting to get in shape to invest.
Fischer talked it over with the Roberts team, and said, “Things aren’t as simple as ‘Just hold on for the long term, everything will be OK.’ Investors should take a more comprehensive financial planning approach to investing.
“The most important question is, when do you plan on spending the money? If the money is earmarked to be used five years down the road or more, history shows that it’s probably wise to stay invested and even add to your account. With the market being off about 25 percent from its highs, we may have seen most of the damage.”
But, she added, “The uncertainty regarding the current banking debacle is the most serious we’ve experienced since our financial planning practice was started in Silverton 26 years ago. Until the extent of the credit crisis and its effect on the economy is fully understood, we believe we could see continued downside volatility. So be prepared for a rough ride. The economy is continuing to slow and we believe we could see more bad news in the coming months. If you simply cannot take the volatility, then you should consider moving to a more conservative position. However, this should be a long-term strategy, not a timing decision.
“Decide whether investing in the market is right for you and if it isn’t, move out of stocks because prices may go lower. But before you do, remember two things – first, if you sell, you run the risk of selling out at the bottom. And if you later decide to reinvest, you may buy back at higher prices and miss an important recovery.”
A key point to remember, the Roberts Financial Group said, is “Average investors underperform the market significantly because they tend to sell when the outlook is frightening. Conversely, they tend to buy when things look rosy but this is when prices are up.”
Secondly, “History shows that on average, the beginning of the market recoveries has preceded the end of a recession by approximately six months. So even though we may be in the midst of a recession, markets could begin recovering when one least expects it.”
Not all is doom and gloom, according to the local financial experts. “It is entirely possible that we could look back at the coming months as one of the best buying opportunities in history.”
The advice may seem fine for those with money to invest, but what about those struggling just to cover their living expenses? The Roberts Team advised, “To get to the point where you can invest, you must first do the following – don’t use credit cards unless you can pay them off monthly. Follow a budget and track your spending on a regular basis. Pay down debt and then set aside three to six months living expenses in savings.”
Savings
Steve Way, president and CEO of Silver Falls Bank in Silverton, believes caution is the key word. “With this much volatility, don’t jump in right now like Warren Buffet has. Those big guys cheer you up when they jump in feet first during a volatile market. They have money. But my advice is to only get in if you can afford to lose it.”
One of Way’s favorite investing quotes is attributed to multi-millionaire Joseph Kennedy, “I never hit the bottom of the market and I never hit the top, but I always hit the trend right.”
Way thinks that if investors want to invest now, they need to take a long-term view. “Long-term,” he believes, is approximately two to three years out.
His best advice in this up-and-down economic ride is, “I’d open a personal savings account. If you have the money to save, a bank-insured account is a safe bet. The yield is lower, of course, because the risk is non-existent. No one has lost one red cent on a federally insured deposit and that ceiling just got raised from $100,000 to $250,000.”
He agrees with other experts and said, “If you wish to get into good financial position and set yourself up for the day you can start investing, pay off those credit cards first of all. Put as much away each month as you can after cutting out frills. And especially to young people, always max out your 401k deduction or other retirement contribution through your employers.”
Real estate
Most experts agree that the housing industry and too-easy-to-get credit are two of the main causes of the current economic crisis. But they say the housing market will improve and real estate can be a good investment now while interest rates are low, inventory is high, and prices are falling. Real estate experts say there are things people can do to get themselves into better financial stead for when the market improves.
Dina Schmidt, a Silverton mortgage loan officer for Reliance Mortgage, says that to put oneself into a better financial situation, future borrowers need to pay attention to their credit scores and increase their down payments.
Schmidt said these “are two of the biggest factors in getting qualified for a mortgage loan. In addition to determining your eligibility for a loan, these factors also determine your interest rate.” In other words, better qualified borrowers get better rates. Better rates save thousands of dollars over the life of a home loan.
Schmidt says there are a few steps people can start taking now in order to put themselves in a better borrowing position later. She said:
1. Pay your bills on time. For a person with a high credit score, just one late payment can cause a significant drop.
2. Reduce your debt. Of the credit cards you do have, do not use more than 30 percent of your available credit.
3. Do not open new accounts. Those 10 percent-off promotions can be so enticing but opening new accounts can have a significant impact on your credit score, so saving $20 on your purchase probably won’t be worth taking a hit to your score and thus increase your chances of paying a higher interest rate on your mortgage loan.
4. Don’t close old credit accounts. Canceling old accounts can lower your score by making your credit history appear shorter.
5. Check your credit report regularly and fix any inaccuracies. You can obtain a free copy of your credit report (one per year from each credit bureau) to verify the accuracy. One popular Web site is annualcreditreport.com. Good financial behavior and time are two of the most important factors for improving your credit score.
To increase your down payment for a future home purchase, Schmidt said, “Put yourself on a budget. Sure, it may give you the same uneasy feeling as the word ‘diet.’ So instead of putting yourself on a ‘budget,’ start by tracking where your money is going. Web sites like mint.com will give you pie charts showing where your money is going. Creating awareness is half the battle.”
