What a difference a year can make. Last year around this time there were headlines calling for a second depression, a stock market heading for 3,000 …
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What a difference a year can make. Last year around this time
there were headlines calling for a second depression, a stock
market heading for 3,000 on the DOW and a complete collapse of the
banking system. Investors smart enough to be contrarian and put
money back to work while stock prices were low are celebrating
It is difficult to go against the grain and invest when the
consensus is to bail. Clearly the markets faltered to the point
where long-term investors, including Warren Buffett, just could not
resist the bargains. Perhaps this is a lesson worth revisiting.
It is important to take a bird’s eye view of investments when
emotions are running the decisions. By stepping back and looking at
the historical trend lines, the low stock valuations in the spring
of 2009 were virtually unprecedented. However, that does not mean
investing at that time would have been a good idea for
Developing a good strategy for short, intermediate and long term
goals is crucial before you jump into any purchase. Once that is in
place and you have reviewed your options with an objective advisor,
you can better determine how to get back on track.
The logical place to start is with very long-term investments
such as a retirement plan or a 401k account. This is easy to invest
in through your payroll deduction and also allows for you to
gradually invest with small amounts each paycheck. Therefore you
have less risk of a whole year’s contribution sliding backwards
when you were dollar cost averaging during all different market
Next take a look at old IRA accounts that are no longer being
funded but may need to be rebalanced. This may be true of Roth IRAs
as well which usually are considered the last money you would spend
due to the tax-free status. Most retirees will leave Roth’s alone
for as long as possible to benefit from more years of tax free
growth. Also if the Roth ends up as an inheritance, the tax free
status compounds for the beneficiary as well.
Taxable investments such as those held outside a retirement
account can also benefit from a fresh look during or shortly after
a recession. You may be eligible to take a tax loss on assets you
no longer want in your portfolio which allows you to make
adjustments without a large tax bill next April.
College funds should also be reviewed based on the year your
student will need the money. Keep in mind some parents are letting
the 529 plans continue to compound for 2010 and deferring
distributions to a later year if other assets are available to pay
for college expenses currently. If you need the money next semester
then it is better to be rather liquid on that portion of the
account. But if you don’t need it for several years, then
compounding with the recovery may help the balance grow.
It is important to always review your accounts as part of your
overall financial plan and risk tolerance. What works for your
co-worker may not be the best advice for you. Use this recovery as
an opportunity to take a fresh look at all of your goals and assets
and build a good strategy to help you get back on track.
Patricia Kummer has been an independent certified financial
planner for 23 years and is president of Kummer Financial
Strategies, Inc., a Registered Investment Advisor in Highlands
Ranch. She welcomes your questions at www.kummerfinancial.com or
call the economic hotline at 303-683-5800. Any material discussed
is meant for informational purposes only and not a substitute for
individual advice. Investing is subject to risks including loss of
principal invested. Rebalancing and dollar cost averaging may or
may not produce positive results.
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