This is the second in a series of articles about investing in a post-boom-bust-boom stock market and economy.
The thing about the stock market is it can bite you in the butt or purse or wherever you keep your wallet at the most inopportune time.
For many older Americans, the bust of 2007-09 hit as they planned or entered the world of retirement.
With their stock portfolio decimated (down over 60 percent in March of 2009 from this decade’s highs), newly retirees or those with plans to retire soon had to rethink plans.
Many chose to continue working – assuming their job didn’t disappear in the recession. Others took part-time jobs to offset losses in their stock portfolio.
So, what is an investor who has some time before retirement to do?
The first thing you should do is get your personal finances in order.
This means reducing your total debt and eliminating any high-interest obligations such as credit card balances that aren’t paid off each month.
You could be paying 18 to 30 percent on credit card balances. Add in fees, annual renewal costs and other fees, such as for paying a balance late or exceeding your credit limit and you are being hammered.
There is almost no legal way to consistently make from 18 to 30 percent on a stock (or bond) portfolio. There will always be high-risk opportunities to score a big gain, but, as the name implies, you will be upping your risk of disaster.
Your first step towards an investment plan that has a chance for success is to pay off all high interest debt.
It makes no sense to invest with the goal of making 10 percent (an ambitious goal) while paying 18 to 30 percent interest on credit card debt.
It may take awhile, but make a commitment to paying down the balance each month on high interest debt. If you pay more than the minimum (which is what you usually see on the credit card statement), you will begin paying down the debt right away.
Most of us can’t afford to buy a car or a house without debt. However, as the bust of 2007-09 has shown, even the once sacred goal of home ownership can be a financial disaster unless done with careful thought and within a reasonable budget.
Here’s a good rule: avoid any financial commitment that assumes the value of the underlying asset will only go up. Trust me, it won’t.
Ask questions and question assumptions.
