Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Friday, July 24, 2009

Maybe It’s Time for a Budget - Part I

The current economic crisis is the worst most of have ever experienced. The market seems to have stopped its rapid decent, with a substantial recovery in the first half of this year. Lately, it seems to be going nowhere. We could even see another significant decline in the Dow before the end of the recession. Earlier in the year, many were predicting an end to the recession before year end. Now many think it may be well into 2010 before the recession ends. Regardless, it certainly seems that we may be in for a long, slow recovery.

Hopefully, you didn’t panic and liquidate your portfolio. Those who do so in a time like this, often find themselves sitting on the sideline when the market rallies. They struggle with when or if to get back in the market, only to miss the big upturn. In the end, they usually do far worse than those who sit tight during market downturns. We also hope you did not stop making your 401(K) contributions. You may never again have a chance to buy in to the market at the prices we are now seeing.

If you have a well-diversified portfolio and rebalance it at least annually, by buying the depressed asset classes and selling the over-allocated asset classes, your portfolio should do well over the long run. But what if we have an extended bear market? Bear markets have been known to last for many years. It may be tougher to achieve all of your goals.

Many are tempted to chase the latest “hot investments”. If you’re not careful, however, you may well get burned. About the time you jump on the bandwagon it’s often late in the cycle and the supposedly “sure thing” investment is already over priced. A recent Morningstar® article noted that the recent first-half rally was fueled primarily by investments in higher-risk stocks (over-valued). If your portfolio is well managed and you’re avoiding the latest hot investments, how can you make up for what you lost the last couple of years?

One way to make up for lost time may be to save more. That brings to mind the dreaded “B” word: budget. While most people do not like the idea of following a budget, having one can reap huge benefits. Few of the clients who come to us for advice have outlined their spending. If you do not know where your money is going, how do you know if you are spending it wisely? Our next post will discuss the steps in creating a budget.


Post a Comment

Subscribe to Post Comments [Atom]

<< Home