Part One of a Three Part Series by David M. Frees III - practicing in the areas of trusts, estates, and asset protection for Pennsylvania residents.
Have you ever wondered how long the economy can continue to move in the wrong direction? Do you wonder what will happen as more and more people lose jobs, savings, investment value and security? How does it change the game for you, your business or job and your family?
Should you be doing things differently?
The quick answer is yes. Enough has changed that some of the ols rules and guidelines just don’t make sense and may even be hazardous to your economic health.
To help you adjust, here are some new concepts to think about for these new conditions
These are tools to help you to build, protect and secure economic heath and even preserve and build wealth when many think that it is just impossible.
Get Your Head Out of the Sand about Your Investments
First, reevaluate your need to preserve capital and your risk tolerance. Now this is tricky. But, many of the long term investments that you made may not be the most likely investments to lead us out of the current economy and, they may no longer even be the best long term investments. So discussing your asset allocation with your financial advisor is urgent. Long term investing does not mean putting your head in the sand but many investors are just saying “I’ll ride this out.” And, many of their advisors are not being proactive.
This reevaluation should apply to your short and long term investments, and should apply to your IRA and 401(k)’s as well as insurance policies and annuities. And, it is essential to coordinate this reevaluation with strategy number two.
Keep Way More Cash Available…and How To Keep Way More Cash Available
The old rule was make sure that you have cash available to cover up to six months of your household expenses in the event you were laid off or had a health problem.
However, underlying this was the assumption of a good economy and good heath and the fundamental belief that ou could replace your job within a few months. In a prolonged down economy with very high unemployment, that assumption may be far from accurate. A job loss might be much more economically traumatic and as a result many advisers are suggesting having one to to years of cash savings available as a buffer.
Now, most people never kept the six months available so how are you going to get two to four times that put aside?
We are preparing a separate article on just those strategies, but for most of us that will require a change in spending and the automatic deduction of more from our paychecks which electronically gets added automatically to a savings vehicle each month.
Some clients are moving money out of stock investments and into cash as well. The danger with this strategy is that bad markets often recover so quickly, that you might miss the opportunity to recover some of your loses. Be sure to discuss the long term pros and cons with your investment advisor.
Also, many clients are also reducing retirement contributions down to the employer match and using the difference to build up cash, and/or to fund college for their children.
Having said that, any amount of additional cash is better than what you have now. So implement a cash strategy and stick to it.
Control and Adjust Spending
The national savings rate in this country has plummeted since 1977 at the same time that American consumers were on a credit backed spending spree. So as a statistical matter, there should be some room to make cuts here and possibly even a strong need to do so.
How do we cut spending? Let’s look at the strategies that businesses use in difficult times. First look for the low hanging fruit. Study credit card statements for the last six months and look for anything that can be easily sacrificed without pain – then cancel it.
Pay attention to recurring expenses, subscriptions, and household services such as lawn, cleaning, etc. Can and should these expenses be adjusted?
Check bak for the next two installments including what to do about college, retirement, and why your health needs an investment infusion....
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David M. Frees III Esquire
David Frees is best known for his representation of affluent families, family businesses, and other professionals inlcuding lawyers, and physicians in the areas of trust and estate planning, asset protection, and for his representation of executors and trustees in estate and trust administration.