Chin up, savers, it'll get better

Times staff and wires

If the Busch Gardens people could capture the roller-coaster swings investors absorbed in the first half of 2008, they'd have one heck of a theme park ride on their hands. Which brings us to you — the reader — trying to hold on to your own little nest egg of stocks, bonds and mutual funds. Between the bratwurst and fireworks of July 4, consider five things you can do to help yourself financially at the start of the second half of '08.

1 The arrival of the bear market — with the Dow off 20 percent off its peak last fall — drives home the importance of asset allocation. If you had all your money in a broad U.S. stock market index fund, you lost about 16 percent between the Dow's record high on Oct. 9 and June 30. But investors who split their money between stocks and bonds in a basic 60/40 mix lost roughly half that amount, because the U.S. bond market gained 4 percent over the period.

2 Just as important as having the right asset allocation is making sure you invest enough. Many big-spending boomers are shocked to learn how little of a portfolio financial advisers say they safely can withdraw in the initial years of retirement to avoid running out of money in old age. Many advisers cite computer modeling showing that retirees under the age of 70 risk depleting their nest eggs if they cash out more than 4 percent annually. That's just $40,000 a year based on a $1-million portfolio.

3 Don't look for an economic miracle in the second half of this year. Yes, there may be pockets of real estate hope in some Tampa Bay neighborhoods, but the overall trend is down. We have not hit bottom yet. While experts do not expect the Federal Reserve to lower interest rates when the central bank meets in August, they do expect longer-term interest rates to rise to offset the threat of inflation.

4 Make an investment plan. This will help you avoid panicky or impulsive moves. Online 401(k) accounts make it almost too easy for investors to transfer money from one fund to another. "When everything's headed down, shifting into cash can have the immediately gratifying effect of shielding your portfolio from losses," says Christine Benz, Morningstar's personal-finance expert. But the sense of relief, she adds, is often short-lived, "replaced by another nagging worry: Is it time to get back in?"

5 Be patient. Be vigilant. The average bear market lasts 406 days, during which stocks fall 31 percent on average. Using that benchmark, we're only halfway through the pain. And keep this sobering thought in mind: Adjusted for inflation and dividends, the return on the S&P 500 was negative for the decade that ended on June 30. And from 2000-2007, the S&P 500 has returned just 1.66 percent. Throw in inflation and taxes, and you've been losing ground.

Information from the Wall Street Journal, Business Week and Smart Money was used in this report.

Chin up, savers, it'll get better 07/03/08 [Last modified: Monday, November 1, 2010 2:22pm]

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