| The Labor Department release on consumer prices | | | | consider moving to 40% stocks and 60% bonds. |
| showed a 1% drop last month in the past month. | | | | 3. Employ wise leverage. If your emergency fund is in |
| The change was largest since 1947 and comes along | | | | place, and you've been thinking about using credit for |
| with troublesome news, such as lowest home builder | | | | a particular purpose, do it now. With the inflation rate |
| sentiment, markets trading at new lows, and a | | | | nearing 5%, it's now the best time leverage your |
| pending automaker bailout. With the financial crisis | | | | good credit. By the time you pay off your debt, the |
| damaging the US economic foundation, you may | | | | credit will likely be worth less than it is now, and high |
| wonder what's in store for you. There are a few key | | | | inflation will effectively minimize your interest cost. |
| strategies to employ while running your finances in a | | | | But remember, using credit is advisable only if used |
| crisis mode. Which ones you use and to what degree | | | | for strategic purposes, such as making necessary |
| they are used depends on your situation. | | | | renovations to your home or purchasing a more fuel |
| 1. Prepare a substantial emergency fund. An | | | | efficient car. Credit shouldn't be used as a source of |
| emergency fund is a pool of liquid assets that you | | | | funding extravagant purchases or as a way to build |
| allocate for emergency needs, such as loss of a job | | | | savings. |
| or sudden medical expenses. Normally, it should | | | | 4. Take advantage of tax breaks. Sell your worst |
| consist of three to six months' salary. However, in | | | | performers before the year-end to offset any |
| today's severe conditions, you should pack away the | | | | taxable gains. If you have been fortunate to hold |
| maximum - six months' worth - and more if you can. | | | | gainers along with some losers, look at selling the |
| Remember to keep your emergency fund easily | | | | losers. If your capital losses exceed your capital gains |
| available such as in a banking account, not in | | | | - a very likely outcome this year - up to $3,000 can |
| investments, because if you need to access money | | | | be deducted against your taxable income per year |
| and your investments are down, you will be forced | | | | (up to $1,500 each for a married person filing |
| to take a loss. If you don't have enough cash, | | | | separately). Because this annual allowance runs out in |
| consider buying a job-loss insurance policy for one | | | | a little more than a month you'll want to act quickly |
| year to protect yourself from the danger of | | | | to take advantage, and you will have funds to |
| increased layoffs around the country. | | | | reinvest as the outlook becomes better. Wondering |
| 2. Adjust risk. Adjust your portfolio risk to the | | | | what stocks to sell first? The stocks that have fallen |
| ongoing reality of the economic times. Stocks and | | | | over 80% since the time you purchased them. It is |
| bonds, as well as mutual funds and ETFs are now | | | | typical for stocks that have fallen that much to not |
| more volatile than normal. If you did not adjust your | | | | return to previous highs, so you don't need to hold |
| portfolio previously, you might be exceeding your | | | | them. |
| preferred risk level by owning too many equities | | | | 5. Ensure a better retirement. It is also the best time |
| compared to what you normally hold in a more stable | | | | of the year to convert your traditional IRA into a |
| market. In order to maintain your level of risk, you | | | | Roth IRA - and pay lower taxes. Because the value |
| should counter the risk exposure by allocating less to | | | | of stocks and mutual funds has dropped so much, |
| stocks, and moving more into bonds. In present | | | | your tax burden at conversion will be much lighter. |
| times, it's best to reduce stock exposure 2-3 times | | | | You can then take advantage of tax-deferred |
| lower than your normal level. For example, if your | | | | growth in your new Roth IRA, and tax-free |
| typical portfolio is 80% equity against 20% bonds, | | | | distribution when retirement comes. |