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<< Previous   of   Next >>   ADVERTISEMENT   Related Stories • Blender also useful for 401(k) statements 10/2/08   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Thursday, October 2, 2008 Don't fret; you can survive credit crisis By Michelle Singletary In the 1950 movie "All About Eve," actress Bette Davis slyly uttered the memorable line: "Fasten your seat belts. It's going to be a bumpy night." She might as well have been talking to today's investors. Except in this case, the bumpiness is probably going to last far longer than just a night. But I have to say I am not at all afraid of this ride -- even after the gargantuan recent drop in the Dow Jones industrial average. I'm not in a panic that the House of Representatives failed to pass the proposed $700 billion bailout. The president and some leaders from both political parties are essentially saying that we -- the people -- are fools for not seeing the wisdom of sinking our country further into debt to free up the credit markets. At least for individual consumers, I'm not mourning the reduced access to credit. Good. People were borrowing too much anyway. For example, an increasing number of automobile buyers have for years been rolling over debt from previous cars into new car loans. How long did we think that could go on? How long did individuals or companies think they could borrow their way to prosperity? Not forever, it turns out. So, what now? Well, in spite of all the predictions of Armageddon, you can still make it through this financial crisis. However, Thomas Geraghty Jr., a certified public accountant and financial planner, says having a road map for your finances is the best way to get ready for this bumpy ride. "If you are prepared and expect the bumps, you can ride this out," said Geraghty, who is a partner at New Jersey-based Stonegate Wealth Management. If you're in your 30s or 40s and you've been putting off developing an overall financial plan that includes your investments, savings, insurance, a will, etc., grow up, Geraghty said. Rather than fretting about a tanking market, do something to be sure you're not taking unnecessary risks. Diversification is the key to minimizing your losses. You should be diversified by asset class and also within each asset class. You should have foreign stocks, natural resources, real estate investment trusts, international bonds and other investments in your portfolio, Geraghty said. Typically his clients are invested in 12 different asset classes, he said. If you're way off balance in your 401(k), for example, and being hammered in the market because you're not diversified, you need to proceed cautiously before making any changes. Geraghty said he might advise someone to slowly move money out of one asset class and into another, depending on their age, what other investments or money they have, and how long they have until retirement. If you're close to retirement or in retirement, you might want to move faster to rebalance. One thing you can definitely do is consider changing how new contributions to your retirement plan are allocated. If you're in your 50s, having an overall plan is crucial because you have less time to recover from market downturns. Geraghty said a typical portfolio for a 50-something investor might have 60 percent in equities and 40 percent in bonds and cash. What if you're considering fleeing to municipal bonds for the safety and tax advantage? Geraghty favors government agency bonds. He also warns about investing in "revenue" bonds that are issued by agencies created by states to fund a single project such as a bridge or stadium. If the revenue from such a project drops, the bond could eventually go into nonpayment status -- meaning that the agency stops making coupon payments. Stick to general obligation bonds issued by government bodies that have the right to raise taxes, if necessary, to meet their obligations, he said. If you're very close to retiring and not diversified, take a deep breath and get some professional advice. "People who have a game plan will be able to ride this out," Geraghty said. "People who don't have a game plan, shame on them." To quote Vivien Leigh in "Gone With the Wind," "As God is my witness, as God is my witness, they're not going to lick me! I'm going to live through this, and when it's all over, I'll never be hungry again." Take up that charge. Vow that this downturn won't take you out even if the ride is rough. Washington Post Writers Group READER COMMENTS Be the first to comment. You must be a registered user and verify your e-mail address to post comments to blogs or articles on HeraldNet. To register, click here. To read other terms and conditions, click here. Log out

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