During 2009 we saw the end of the deepest recession, since the Great Depression of the 1930’s.
We witnessed the bankruptcy of GM and Chrysler, a tumbling stock market, record housing foreclosures and double digit unemployment. And this was all in the first half! The second half of the year saw a stabilizing in all of these areas, with economic growth moving into the black for the first time in two years.
Most forecasts for 2010 are for 2.0 percent to 3.0 percent GDP growth, some easing in unemployment and inflation remaining in check, primarily because of slack demand. Unfortunately, the improving economy is being propped up by federal government stimulus programs and a Federal Reserve Bank policy of low interest rates. Neither of these policies are sustainable over the long haul.
An economic yellow light
The US economic recovery is still fragile. However, many financial advisors are somewhat optimistic about the future and would give the economic recovery a “yellow light” meaning to proceed with caution. The recent financial crisis in Dubai and the alleged terrorist on the Northwest flight to Detroit rattled the markets and have caused many to look over their shoulder, waiting for the next “shoe to drop.” Given the uncertainty, consider the following while working on your financial plan for 2010.
n Debt is a four-letter word. If you have credit card debt, work it down with the objective of reducing the total amount of debt, lowering your interest rates and reducing the number of creditors. Don’t make purchases that add to your unsecured debt load.
n Build your emergency fund. The objective should be saving the equivalent of 3-6 months expenses. Your emergency fund will help carry your family through short term financial emergencies such as medical expenses, home and auto repairs and even unemployment. An emergency fund should be invested in relatively liquid instruments such as money market funds, saving or credit union accounts and even short term CD’s.
n Do the math and double check any major financial moves that you make in 2010. Make sure that the financial move fits within your overall financial plan. This would include items such as major purchases, job changes and investments.
n Enhance your job security, by improving your skill set. Raise your hand to participate on taskforces, take job related courses at a local university, volunteer to participate with company sponsored charitable organizations and seek out mentors for council. Outside of your company, develop a network of professionals in related fields that you can help and that can help you in the future. Finally, keep your resume up to date and continuously keep an eye on the market for jobs in your specialty.
n Diversify your investments and rebalance your accounts at least annually. If you hold company stock, it should not be more that five to 10 percent of your net worth. If your company hits a rough spot, you may not only lose your job, but also your lifesavings. Diversify the investments in your retirement savings account and other investments.
Keep the faith
The US economy has been resilient in the past. It has survived a Civil War, two World Wars, the Great Depression, the 911 Terrorist attacks and the most recent credit meltdown and deep recession. Keep the faith but at the same time proceed with caution and keep your eyes on your financial goals.
Michael G. Shinn, CFP, Registered Representative of and securities and investment advisory services offered through Financial Network Investment Corporation, member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to firstname.lastname@example.org. © Michael G. Shinn 2009.