Tune out hysteria to build your wealth

Experts: Assess, plan, network

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5 tips on recession investing
1. Cut spending, boost saving.
2. Avoid stocks if you need cash within five years.
3. Stay the course with retirement savings.
4. Still too nervous? Invest an IRA in CDs.
5. Younger? Be more aggressive.

Now what?

With the economy in a recession and most experts predicting that the worst lies ahead, deciding what to do with your money seems overwhelming.

Many market strategists are urging investors to remain cautious with investments, yet there are brave souls suggesting that it is time to start buying stocks in preparation for the inevitable recovery. Historically, the stock market tends to show improvement while the economy remains in a recession because investors start to anticipate better times even while unemployment is growing.

Optimists are betting on government-financed infrastructure projects to put people to work and improve the economy in 2010. Skeptics continue to worry about sickness in the financial system and aren't eager to take risks in the stock market.

Consequently, financial advisers agree on one strategy: Prepare for bad times by cutting spending and saving more. After that, the decisions get more interesting. Hold steady on all longer-term investments? Tinker a bit? A lot?

The answers depend. People often look for the one stock, bond or mutual fund that will help them make the most money or avoid losing money.

Financial advisers look at investing differently. They focus on when you will need your money. Then they have you select a mixture of funds so you aren't injured too badly in a down market but are prepared to make money when stocks start to climb. They know that trying to predict when the ups and downs will come is a fool's game.

A retired person who has enough cash and bonds to cover spending needs for years shouldn't worry if a stock or stock mutual fund has been losing money during the recession, said Lewis Altfest, a New York financial planner.

And a family that needs to be paying for college next year can afford to lose some money in their retirement fund but not in the college savings fund.

The rule of thumb is to keep money out of the stock market if you will need it within five years. But if you're invested, be patient. Typically, when the stock market falls 20 percent or more, in what's called a bear market, investors recover within 21/2 years. But in awful bear markets—like the present one—it often takes longer: 71/2 years after the 1973-74 downturn and 13 years after the Depression-era decline.

If you are saving for retirement: Financial planners are trying to get people to stay the course with retirement savings—stashing money away with every paycheck. But that means staying with a reasoned mixture of funds—maybe 50 percent in stock mutual funds and 40 percent in bond mutual funds and 10 percent in a money market fund if you are close to retirement.

If you are in your 40s, Mark Wilson, a Newport Beach, Calif., financial planner, suggests keeping 60 percent in stocks and 40 percent in bonds. For younger people, he favors 70 percent in stocks to take advantage of their higher threshold for risk.

Although Wilson's not sure the stock market has fallen as low as it will go, he thinks young investors should be positioned in stocks now to make money when the upturn comes. Despite a troubling year ahead, Wilson said young people must be saving diligently for retirement because they are likely to live 30 years past 65. On average, Americans receive about $13,000 a year from Social Security.

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