how to deal with a financial crisis
Watching the market these days you can be forgiven for a case of the heebie-jeebies. I’ve had them for a while now. You have two choices in dealing with downturns like this: either assume it’s the end of the world and time to start buying canned beets and bullets, or accept the conventional wisdom that this is a downturn like every other downturn in economic history. If you believe that, you believe that things are going to turn around eventually, be it six months or six years.
Here are 7 mistakes I’m not going to make in this crisis:
- Listening to pundits. I was watching a series of comments by guys working at firms that have a hand in this crisis – brokers, bankers, candlestick makers. Remember this: brokers win if you buy OR if you sell. They don’t care if you gain or lose, just that you move your positions a lot. Don’t be fooled by guys telling you it’s time to get out – they get the same commissions when you sell that they do when you buy.
- Stopping 401(k) contributions or withdrawing from retirement accounts. That money’s set aside, tax advantaged, and already “in there.” I’m not a financial adviser, but I’ll tell you this – I’ve upped my 401(k) contribution rate. That is the easiest method of averaging out purchase price on funds that I know of (other than Sharebuilder). I’m going to keep putting money in my 401(k)’s S&P 500 index fund. Why not? Tax free investments in a cheap fund? Sign me up. It may not be forever – I’ve expressed my doubts – but at least so far it looks like the best bet out there.
- Doubling down on my job. You may think now is the time to concentrate on your job and cling to it like grim death. Wrong. Now is the time to network, expand your skills and polish your resume. Now is the time when you have to be prepared – more than ever – to make a move to a new job or even a new career. I’ll give you an example – I’ve been attending seminars on emerging accounting issues to increase my consulting “cred,” and at the same time I’ve been looking into the requirements for a complete career change. I’m also making sure that I keep up my contacts, even as 50% of them are laid off.
- Neglecting my health. Market goes up, being healthy pays off. Market goes down, being healthy pays off. I’ve been neglecting my health recently. My weight is up, fitness is down and my eating habits are terrible. Any time is a good time to focus on health, though, and I will be doing just that. Your health is an asset, just like an IRA or a house: protect it.
- Taking on excessive risk OR being overly conservative. If you think now is the time that you can throw money in penny stocks and become the Buffet of Pennies – OR if you think it’s time to stuff euros in a sock in your closet – pull yourself together. As I said above, if you think this is the final economic crisis in the US – the beginning of the Road Warrior years – yank everything out. If you think you’re a lucky, lucky investor, plow your money into speculative junk equity. If you’re STILL convinced that the broader market will recover someday, do this: stick to the investment plan you had a month ago!
- Giving up on positive thinking. If you are like me, you are getting killed by negativity these days. I worked in the New York financial services sector as a consultant. “I told you this was going to happen” is not something people wanted to hear from their governance consultants these days. Even if you don’t expect the best, try to promote the best.
- Assuming my opinion doesn’t matter. Again and again you’re going to hear from political candidates what they will do and what they will fix. Let me tell you a secret that no candidate wants you to realize: they are terrified YOU will hold them accountable, and half (or 90%) of their election strategy is hoping you don’t. And a second dirty secret is this: your Congressman/woman is assuming you will vote for them once they are incumbent, because they are. But you know what? Your opinion matters. They are citizens, with one vote, just like you.
Mistakes? I’m sure I’ll make plenty. But I am trying my best in this crisis to realize that the biggest mistake I can make is changing my core beliefs in how to behave, how to invest and how to live. If more of us take charge of what we can control, we’ll be able to devote more of our attention to controlling our economy.