By Jean Chatzky
For years, I've been preaching the mantra that boring is better when it comes to your investments. In fact, if you've been reading this column for any length of time, you know that my strategy is to come up with an asset allocation that you can live with and then dollar-cost average into the market on a regular, automatic basis.
Given the state of today's market, you might be thinking that I've changed my tune. But, in fact, this economy has only served to validate my position. If — at the onset — you can't commit to staying in the market despite its ups and downs, you're treading dangerous waters, particularly if you're not an experienced investor. You run the risk of overthinking the situation and making investment decisions that not only aren't rational, but are emotional as well. In other words, you run the risk of losing your hard-earned money. That's why now — more than ever — you need to dial in to your patient side.
Set it and forget it
When I saw "The Gone Fishin' Portfolio," a new book by Alexander Green, I knew I had to talk to him. He's been getting a lot of press these days because the portfolio outlined in his book can be managed in just 20 minutes a year, a strategy that is right up my alley. How did he do it? The key is very careful asset allocation. Green selected a range of asset classes that move independently of each other, so even when part of the portfolio is down, another portion will likely be up. "I tried to put together a blend of assets that will all give a better return than inflation over time, but when mixed together, give you a higher degree of return with less risk," Green explains.
If you have faith in your asset allocation and you're properly diversified, you can rest easy that your portfolio will come out on top without a lot of tinkering on your part. If you're unsure, it's worth seeing a financial adviser for help. These days, there's even a group of advisers that charge by the hour.
Have a plan
It doesn't have to be hugely detailed, but at the very least, you need a few rules in place that govern your reaction to the market. "Most people don't; they invest emotionally," says Green. "But if you're going to have investment discipline, that means sticking with your plan in good times and in bad times. You have to realize that the market has ups and downs."
Here's the deal — if you can't sleep at night, you need to change your asset allocation because you're clearly taking more risk than you can tolerate. I'm not suggesting that you sweat it out to the detriment of your mental health, and neither is Green. But what I am suggesting is that you set your asset allocation to a level of risk you can handle, then decide how much your budget will allow you to save each month. Once you have a figure, whether it's $100 or $1,000, put it on autopilot and continue to invest that amount whether the market is up or down.
Recognize your goal
Ask yourself: Why are you in the market in the first place? For most people, the end goal is a comfortable retirement, and it simply can't be reached without taking a little risk. If you forgo investing and just save in a standard money market account, your money isn't going to keep up with inflation, meaning you'll actually lose money over time. Keeping up with inflation means ceding a little control. "No one likes uncertainty. As a general rule, it's frightening. But what people tend to overlook is that there really is no alternative. The markets are always uncertain," says Jason Zweig, author of "Your Money and Your Brain."
There are, of course, circumstances when a money market is the way to go. If you're saving for a short-term goal — think five years or less; like a down payment on a house or your children's education — you're better off keeping that cash out of the market right now. You don't want to run out of time before you can recover from a big loss.
Don’t forget the basics
Save early, save often is a line you probably hear a lot, and it's an important one. Risk and return aside, the amount you stash away plays a big part in the number you'll have when you hit retirement age. "I tell people that there are only six things that will determine the future value of a portfolio," says Green. "The amount of money you save, the length of time you let it compound, what your asset allocation is, the market's annual return, the expenses you absorb and the taxes you pay." Don't get so caught up in the market's waves that you overlook these important rules of thumb.
Control everything else
You have no say over the stock market. But you can control how you spend your money. You can choose to keep your credit card in your desk drawer at home when you go out. You can decide to put a little extra money away each month so you have an emergency fund at the ready. Having a grasp on the rest of your financial life will help you remain calm if (and when) the market takes another dip.
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Showing posts with label Credit Risk. Show all posts
Showing posts with label Credit Risk. Show all posts
From: Credit Info Center
Why do I Care About Credit Unions?
One of the most important part of rebuilding your credit is establishing new credit. An excellent source of easy credit is the credit union. They have more lenient credit guidelines on auto loans, credit cards and second mortgages. However, most people don't know which credit unions they are qualified to join. Here are some tips.
How to Find a Credit Union
The good news: If you want to be a member of a credit union, you probably can. The bad news: They rarely advertise, so if you want a credit union, you'll most likely have to do a little legwork on your own... but the rewards will likely be worth the effort!
A credit union is a cooperative financial institution, not-for-profit, owned and controlled by its members. A credit union's charter defines its "field of membership," which could be an employer, a geographic region, school, religious or professional affiliation, or community. Anyone working for an employer that sponsors a credit union, for example, is eligible to join that credit union.
Whether you choose to entrust your hard-earned money to a bank or a credit union, you will want to make sure that it is federally insured. Where a bank might sport the FDIC logo, in a credit union you want to look for the insignia of the National Credit Union Administration (NCUA). The National Credit Union Administration regulates federal credit unions and insures the vast majority of all credit unions in the United States. Its insurance fund guarantees deposits up to $100,000, just like a bank.
What are the Advantages of a Credit Union?
Becoming a member of a credit union is advantageous because credit unions are non-profit, and exist to provide members with a place to save money. Credit unions typically have lower costs associated with all of their products and services.
Credit unions were created to enable people to pool their financial resources to help themselves and each other, working together as a team to create solutions to meet their financial needs. When you compare credit union information to that of a traditional bank, you'll find lower interest rates when borrowing and higher percentage rates in savings as a credit union member.
Because they are not-for-profit institutions, credit unions offer better rates on credit cards, sometimes up to three percentage points lower than the average bank card rate. Typically, they are more forgiving regarding creditand may even allow people with past bankruptcies to qualify for unsecured cards. Credit unions are an especially good option for people who are building credit for the first time or trying to re-establish good credit, as they are typically smaller organizations which offer personalized service and are more willing to consider factors beyond the "black and white".
Financial education is available to all members. Credit unions assist members in becoming better-educated consumers of financial services.
Your credit union can put you in business with a small business loan. And some credit unions have established a relationship with the Small Business Administration (SBA) to expedite loans to credit-worthy small businesses.
Credit unions are governed through an unpaid, volunteer Board of Directors, democratically elected by the credit union membership.
Finding a Credit Union
Governmental regulatory agencies require that credit unions restrict their membership to defined segments of the population, such as people who live, work, worship, or attend school in a well-defined geographic area; employees of specific companies or trades; members of specific non-profit groups (alumni associations, conservation or other advocacy organizations, lodges, churches, or the like); or a particular occupational group (teachers, doctors, etc.)
Read More..
Why do I Care About Credit Unions?
One of the most important part of rebuilding your credit is establishing new credit. An excellent source of easy credit is the credit union. They have more lenient credit guidelines on auto loans, credit cards and second mortgages. However, most people don't know which credit unions they are qualified to join. Here are some tips.
How to Find a Credit Union
The good news: If you want to be a member of a credit union, you probably can. The bad news: They rarely advertise, so if you want a credit union, you'll most likely have to do a little legwork on your own... but the rewards will likely be worth the effort!
A credit union is a cooperative financial institution, not-for-profit, owned and controlled by its members. A credit union's charter defines its "field of membership," which could be an employer, a geographic region, school, religious or professional affiliation, or community. Anyone working for an employer that sponsors a credit union, for example, is eligible to join that credit union.
Whether you choose to entrust your hard-earned money to a bank or a credit union, you will want to make sure that it is federally insured. Where a bank might sport the FDIC logo, in a credit union you want to look for the insignia of the National Credit Union Administration (NCUA). The National Credit Union Administration regulates federal credit unions and insures the vast majority of all credit unions in the United States. Its insurance fund guarantees deposits up to $100,000, just like a bank.
What are the Advantages of a Credit Union?
Becoming a member of a credit union is advantageous because credit unions are non-profit, and exist to provide members with a place to save money. Credit unions typically have lower costs associated with all of their products and services.
Credit unions were created to enable people to pool their financial resources to help themselves and each other, working together as a team to create solutions to meet their financial needs. When you compare credit union information to that of a traditional bank, you'll find lower interest rates when borrowing and higher percentage rates in savings as a credit union member.
Because they are not-for-profit institutions, credit unions offer better rates on credit cards, sometimes up to three percentage points lower than the average bank card rate. Typically, they are more forgiving regarding creditand may even allow people with past bankruptcies to qualify for unsecured cards. Credit unions are an especially good option for people who are building credit for the first time or trying to re-establish good credit, as they are typically smaller organizations which offer personalized service and are more willing to consider factors beyond the "black and white".
Financial education is available to all members. Credit unions assist members in becoming better-educated consumers of financial services.
Your credit union can put you in business with a small business loan. And some credit unions have established a relationship with the Small Business Administration (SBA) to expedite loans to credit-worthy small businesses.
Credit unions are governed through an unpaid, volunteer Board of Directors, democratically elected by the credit union membership.
Finding a Credit Union
Governmental regulatory agencies require that credit unions restrict their membership to defined segments of the population, such as people who live, work, worship, or attend school in a well-defined geographic area; employees of specific companies or trades; members of specific non-profit groups (alumni associations, conservation or other advocacy organizations, lodges, churches, or the like); or a particular occupational group (teachers, doctors, etc.)
Read More..
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