Investing in an Uncertain Economy For Dummies (For Dummies (Business & Personal Finance))

386 Pages·2008·5.99 MB·English

by  Sheryl Garrett

Investing in
an Uncertain
Economy
FOR
‰
DUMmIES
by Sheryl Garrett and
Garrett Planning Network
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Investing in
an Uncertain
Economy
FOR
‰
DUMmIES
by Sheryl Garrett and
Garrett Planning Network
01_401163-ffirs.indd i 9/3/08 8:43:32 PM
®
Investing in an Uncertain Economy For Dummies
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Copyright © 2008 by Wiley Publishing, Inc., Indianapolis, Indiana
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About the Author
Sheryl Garrett, CFP, founder of The Garrett Planning Network, Inc., has
been dubbed “The All-American Planner,” possibly because of her zealous
mission to “help make competent, objective f nancial advice accessible to all
people.” Sheryl’s fresh approach as a f nancial advisor working with clients
on an hourly, as-needed, fee-only basis has evolved into an international
network of like-minded f nancial advisors, the Garrett Planning Network.
This book is a collaborative effort brought to you by more than 70 profes-
sional f nancial advisors who are members of the Garrett Planning Network
(www.garrettplanningnetwork.com).
Sheryl has also been honored to work with the House Subcommittee on
Financial Services regarding predatory lending regulation, f nancial literacy,
and Social Security reform. She also works as a consultant and expert
witness in lawsuits against f nancial advisors who rendered questionable or
inappropriate f nancial advice.
She has authored, coauthored, or served as a technical editor on more than
a dozen books and several magazine columns. These books include Garrett’s
Guide to Financial Planning (National Underwriter), Just Give Me the Answer$
(Dearborn Trade), Money Without Matrimony (Dearborn Trade), Personal
Finance Workbook For Dummies (Wiley), and A Family’s Guide to the Military
For Dummies (Wiley).
As a vocal advocate for f nancial education, Sheryl has frequently been
interviewed on CNNfn, Bloomberg, ABC World News Now, and Fox-TV; NPR’s
All Things Considered and Marketplace; and in Business Week, Newsweek,
Time, Forbes, Kiplinger Personal Finance, Money, Smart Money, MarketWatch,
U.S. News & World Report, Glamour, Parade, Better Homes and Gardens, the
New York Times, USA Today, and the Wall Street Journal. For four years
straight, Sheryl was recognized by Investment Advisor magazine as “One
of the Top 25 Most Inf uential People in Financial Planning.” The National
Association of Personal Financial Advisors (NAPFA) honored Garrett with
the prestigious Robert J. Underwood Distinguished Service Award for her
contributions to the development of the f nancial planning profession.
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Dedication
On behalf of the members of the Garrett Planning Network, I dedicate this
book to you, the reader. Our goal is to help answer your questions and
empower you to make smarter f nancial decisions so that your most cher-
ished life goals become reality.
Author’s Acknowledgments
The passion and devotion of my colleagues in the Garrett Planning Network
made this book possible. We all share the mission to help make competent,
objective f nancial advice accessible to all people. This book is an extension
of that mission.
Thank you to Jeff Alderfer, David Anderson, Diane Blackwelder, Kevin
Brosious, Barbara Camaglia, Kay Conheady, Peggy and Chad Creveling, Helga
Cuthbert, Debbra Dillon, Paul Dolce, Jake Engle, Christine Falvello, Cynthia
Freedman, Eileen Freiburger, Robert Friedland, Deidra Fulton, Gwen Gepfert,
Garry Good, Angela Grillo, Kathy Hankard, Katherine Holden, Will Humphrey,
Ben Jennings, Kim Jones, Jean Keener, Derek Kennedy, Michael Knight,
Cheryl Krueger, Derek Lenington, Charles Levin, Jennifer Luzzatto, Roland
Mariano, Warren McIntyre, Herb Montgomery, Thomas Nowak, Robert Oliver,
Kevin OíReilly, Michael Oswalt, Abigail Pons, Dylan Ross, Brooke Salvini,
Martha Schilling, Corry Sheff er, Brian R. Smith, Bruce Sneed, Janice Swenor,
James Taylor, Denisa Tova, Gigi Turbow Marx, Neil Vannoy, John Vyge, Liane
Warcup, and Richard Weimert. Without your insight and contributions, this
book would not have been possible.
My collaborative and support team, including Shawnda Hubbard, Jamie
Breeden, Thomas Arconti, John Belluardo, Rick DeChaineau, William Keffer,
Buz Livingston, David McPherson, Kevin Sale, Louise Schroeder, and Michael
Terry, were indispensible. Thank you all for your endless energy and stead-
fast devotion to this project.
I’d be remiss not to acknowledge the army of folks involved in this project at
Wiley Publishing. Thank you for taking on this challenge and for having faith
that we could deliver.
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Publisher’s Acknowledgments
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Cartoons: Rich Tennant
(www.the5thwave.com)
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Contents at a Glance
Introduction ................................................................ 1
Part I: Laying a Solid Foundation ................................. 5
Strategy 1: Keep Your Feet on the Ground ..................................................................... 7
Strategy 2: Realize That This Has Happened Before (And Will Happen Again) ....... 11
Strategy 3: Plan for Life’s Uncertainties ........................................................................ 15
Strategy 4: Protect Your Ability to Earn Income.......................................................... 18
Strategy 5: Assess Your Medical Insurance .................................................................. 22
Strategy 6: Assess Your Disability Insurance ............................................................... 26
Strategy 7: Assess Your Long-Term Care Insurance ................................................... 30
Strategy 8: Assess Your Life Insurance ......................................................................... 34
Strategy 9: Take Stock of Your Current Financial Picture .......................................... 39
Strategy 10: Save .............................................................................................................. 44
Strategy 11: Manage Your Debt ...................................................................................... 47
Strategy 12: Improve Your Credit Score ....................................................................... 51
Strategy 13: Set and Prioritize Financial Goals............................................................. 56
Strategy 14: Don’t Let Your Money Beliefs Sabotage Your Goals .............................. 60
Strategy 15: Avoid Common Mistakes in a Down Market ........................................... 64
Strategy 16: Use Non-Investment Options to Improve Your Finances ...................... 68
Part II: Using Investment Vehicles and Accounts
throughout the Economic Cycle ................................... 73
Strategy 17: Include Cash Reserves: Savings, CDs,
and Money Market Accounts ....................................................................................... 75
Strategy 18: Government Bonds: Should You Loan Uncle Sam Your Money? ......... 79
Strategy 19: Decide Whether Fixed Annuities Are Right for You ............................... 83
Strategy 20: Simplify with Target-Date Funds .............................................................. 87
Strategy 21: Invest in Mutual Funds .............................................................................. 90
Strategy 22: Hedge Your Bets with Variable Annuities ............................................... 95
Strategy 23: Invest in Exchange-Traded Funds (ETFs).............................................. 100
Strategy 24: Diversify with Real Estate Investment Trusts ....................................... 104
Strategy 25: Consider a Separately Managed Account ............................................. 107
Strategy 26: Invest in Individual Stocks ...................................................................... 112
Strategy 27: Invest in Individual Bonds ....................................................................... 116
Strategy 28: Hedge with Options.................................................................................. 121
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Strategy 29: Invest in Commodities ............................................................................. 125
Strategy 30: Consider Short-Selling ............................................................................. 129
Strategy 31: Use Caution When Buying on Margin .................................................... 133
Strategy 32: Get the Most Out of Your Taxable Accounts ........................................ 136
Strategy 33: Invest in Individual Retirement Accounts (IRAs) ................................. 139
Strategy 34: Make the Most of Your Employer Retirement Accounts ..................... 144
Strategy 35: Choose a Self-Employment Retirement Account .................................. 149
Part III: Demystifying Risk: Accumulating
and Protecting Wealth ............................................. 153
Strategy 36: Understand Investment Risks ................................................................. 155
Strategy 37: Sort Through an Investment’s Return ................................................... 159
Strategy 38: Assess Your Ability to Absorb Losses ................................................... 163
Strategy 39: Create a Portfolio You Can Grow and Consume .................................. 166
Strategy 40: Allocate Your Assets to Minimize Risk .................................................. 170
Strategy 41: Rebalance Your Asset Allocation ........................................................... 173
Strategy 42: Diversify Your Stock Portfolio by Size ................................................... 178
Strategy 43: Diversify Your Stock Portfolio by Valuation ......................................... 182
Strategy 44: Diversify Your Stock Portfolio by Country ........................................... 186
Strategy 45: Diversify Your Portfolio by Industry...................................................... 189
Strategy 46: Diversify Your Bond Portfolio ................................................................ 192
Strategy 47: Diversify Your Portfolio with Alternative Vehicles .............................. 197
Strategy 48: Employ a Conservative Portfolio ............................................................ 201
Strategy 49 Employ a Moderate Portfolio ................................................................... 206
Strategy 50: Employ an Aggressive Portfolio ............................................................. 211
Part IV: Investing for Accumulators........................... 217
Strategy 51: Save for Emergencies ............................................................................... 219
Strategy 52: Provide for Large Expenses .................................................................... 223
Strategy 53: Develop a Plan to Provide for Children ................................................. 228
Strategy 54: Save for Retirement Regardless of the Shape of the Economy .......... 232
Strategy 55: Determine How Much Money Is Enough for the Rest of Your Life .... 235
Strategy 56: Strategies for Beginning Investors ......................................................... 239
Strategy 57: Investments for Beginning Investors ..................................................... 243
Strategy 58: Strategies for Intermediate Investors .................................................... 247
Strategy 59: Investments for Intermediate-Stage Investors ...................................... 251
Strategy 60: Take Advantage of Retirement Plan Catch-Up Provisions .................. 256
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