This Week in Your Wallet: June 5, 2012
As I’m sure you saw, the latest jobs report was released on Friday — and the numbers were much lower than many people had hoped they would be. The U.S. added just 69,000 jobs last month, and the unemployment rate ticked up to 8.2%. As a result of this devastating news (coupled with some European fears), the Dow dropped 275 points on Friday, its largest decrease in over six months. The markets are still in flux today — the Dow fell 11 points just minutes after the opening bell this morning.
The question looming right now is: will the U.S. fall into a double-dip recession? As a CBS MoneyWatch article noted, the answer is currently unclear, though will ultimately depend largely on what happens in Europe. If Greece defaults or confidence in the economies of Spain and Italy cause investors to flee, Europe could plunge into a recession, and this could push our own hobbling economy into recession.
Despite this bad news, I don’t want you to panic. In fact, as a SmartMoney blog post suggested, I want you to avoid looking at your 401(k) balance for the moment. Seeing lower numbers will only cause you stress and tempt you to make irrational decisions, which is never good for the overall health of yourportfolio.
However, if you do feel the need to look at your balance — or if you already looked this month — I want to share this Wall Street Journal article with you. It’s about the power of a written plan. Or, as the article calls it, an investment-policy strategy.
Creating one is fairly simple. You describe how you want your money managed, your desired asset allocation, any restrictions on holdings, and a time frame for all of this. Then, you stick to it. This might be easier said than done during particularly volatile times (or downturns like the one on Friday), but that’s the point — investment managers have found that written policies have helped clients stay the course when they might otherwise be tempted to react to the news and do something with their portfolio that they hadn’t planned.
“An investment-policy statement forces the client to lay out a game plan, maybe for a comfortable retirement,” an investment adviser told the Journal. “In reviewing it, you’re asking if it’s worth putting that plan in danger because of what’s in the headlines.”
As an added bonus, drafting an investment-policy statement can be a great way of making sure that you and your financial adviser are on the same page (if you have an adviser). Nothing is ever as clear as when it’s in writing.
Do you already have an investment-policy statement? If so, how is it working for you? If you don’t have one, now might be the time to sit down and draw one up.
And now, here are the other headlines for the week:
About those jobs…
For those of you who are interested in the “why” behind the low jobs numbers, Bloomberg Businessweek surveyed 87 economists to come up with the five most likely theories. Among their hypotheses: it’s the weather (I’m not kidding on that one) and “this is normal.” I happened to like the sixth guess the best: bad news on jobs is bad news for jobs. “To the extent that these numbers are generally disappointing to folks, that itself makes people more cautious,” said an economist at Deutsche Bank. “They read about it, they see it on TV. The weakness becomes self-perpetuating.” The moral here: try to not be so gloomy.
Disputing credit report mistakes
In talking about identity theft, we often talk about checking your credit report and monitoring it for any activity that was not your own. But for those of you who find that advice somewhat nebulous, Credit.com recently published a great step-by-step guide on exactly how to fix the mistakes on your report. Among the details they provide: when to dispute online versus by mail, when to dispute the mistake with the credit reporting agency versus when to dispute the mistake with the furnisher, and when to talk to a consumer law attorney. It’s a thorough and helpful article — I recommend checking it out, and possibly even printing it for safekeeping. Even though we all think identity theft can’t happen to us, it’s always better to be prepared.
Saving $10,000 the old-fashioned way….
… By not spending it! Over the weekend, I stumbled upon a terrific tale of a woman who realized her family needed a money makeover. She described their spending as “haphazard” and admitted they had been saving too little. So they put themselves on the financial equivalent of Weight Watchers, tracking every dollar and eliminating any unnecessary consumption. (This actually ties in with one of my Money Rules. Money Rule #20 is “Count dollars like calories.”) Some spending decisions were difficult — she writes of feeling guilty for spending $6.99 on a gallon of organic milk but ultimately deciding that the health of her family was worth the splurge. However, over time, she was able to trim the fat from her budget and pay down $10,000 of credit card debt. It’s a detailed and long account, but well worth the read.
Have a great week!
Jean
