Financial Pros Answer Your Top Questions
ABCNews.com posed readers' questions to financial pros nationwide.
Oct. 1, 2008— -- As the Senate prepares to vote on the massive Wall Street rescue or bailout plan, depending on your perspective, we decided to ask some experts how you can best navigate this skittish economy.
Simply put: Americans are facing plenty of uncertainty about their own finances.
ABCNews.com -- with the help of the Garrett Planning Network, the Financial Planning Association and several financial planning and advice companies -- reached out to experts across the country to get answers to some of the most pressing personal finance questions posed and inspired by our readers. Below, a sampling of the experts' responses.
Q: I am in my 50s, and I'm seeing huge losses in my 401(k) and other retirement plans. I'm worried it might all disappear and I'll have nothing to live on once I retire. What should I do?
Deborah Winterhalter, president, the Grace Financial Planning Company, Warrenville, Ill.: "If you are more than five years from retirement, keep contributing to your employer's retirement plan. Maximize your contribution if you are able or contribute at least enough to get any employer matching contribution. You are buying today's shares 'on sale.' This might be a good time to look at what percentage of your 401(k) plan is invested in stocks and what percentage is in bonds to see if an adjustment should be made. The percentage you are investing in stocks may be higher than what you are comfortable with."
Susie Johnston, certified financial planner, Cherry Hills Investment Advisors, LLC, Greenwood Hills, Colo.: "My recommendation is to review your investments within your 401(k) to make sure they are diversified. You should have investments in all areas of the market, including international mutual funds. You should probably have 60 percent to 70 percent in stocks and 30 percent to 40 percent in bonds and cash positions. Continue periodic investing (dollar-cost averaging) into your 401(k) as this market corrects and remember that this will end -- it might not be soon, but it will."
Jay Hutchins, president, Comprehensive Planning Associates Inc., Lebanon, N.H.: "You are experiencing a normal emotion under today's market conditions: fear. Just as it is imprudent to shift all your money into stocks when they are going up (that is the greed emotion), it is equally imprudent to shift all of your money out of investments when they are going down."
Q: I have some time until my retirement, and I'm sick about worrying about the stock market. Can I just put my money in savings accounts and CDs for now and then just jump back into the market when stocks start recovering?
Jake Engle, certified financial planner, Wealth Planning & Management LLC, Seattle: "Who anointed you as smarter than Warren Buffet? If Warren doesn't get out of the market and market time ('wait to jump back in'), neither can you. Every unbiased academic study has shown that you can't market time. Don't try. Keep buying stock mutual funds in your 401(k) and with all your savings. Stocks are 'on sale' right now. Treat it as a blessing, and grab some."
Winterhalter: "Trying to move in and out of the stock market (market timing) is generally not wise. It is very difficult to know the best time to sell stocks, and once you've done that it is difficult to know when to buy stocks again. Many people end up doing nothing, because they are paralyzed by indecision. It is better to have a plan and stick with it. Keep enough emergency cash available to meet at least three to six months worth of your living expenses in an account that is easy to get at (such as a savings or money market account). Next, come up with an investment plan that you feel you can stick with in both up and down markets."
Hutchins: "Following crises-induced panic selling, stock markets tend to rebound in an explosive manner. This makes it unlikely that you will be able to re-enter the market quickly enough to participate in much of the recovery. You will likely have converted temporary paper losses to permanent real losses. You may find your easier sleep today coming at the expense of sleepless nights during retirement."
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