Hello All,
Every indication points towards a rough 2009. Job losses have been brutal. In January nearly 525,000 people were unemployed and in December the economy shed another 524,000 positions (1). Industrial production is down 7 percent from 2007 (1). As a sign of the times bankers attending the recent 2009 World Economic Forum in Davos were roundly criticized (1) and former Clinton whiz kid Nouriel Roubini is predicting that banks will need to write down an additional 2.2 trillion dollars worth of assets (1). It all adds up to some seriously bad news for US economy.
So what should you do?
Well, here is what we are doing.
1) Taking a cautiously optimistic approach towards investing. Despite the financial downturn, some companies remain very profitable. For example, amazon.com and Apple Inc. both reported substantially increased earnings. In addition, some smart money Gurus appear optimistic. For example, value investor Warren Buffet indicated in a recent interview with PBS that Berkshire Hathaway is buying. There are profitable opportunities to be had out there.
2) Diversification and capital preservation. Our 2009 goals include the purchase of $7,000 in municipal bonds. We haven’t been big fans of bonds, but since things are rough, a position in this asset class would help us sleep better. We will also be buying more real estate – but this time outside of Washington DC. So, between the bonds and the new house we should be a bit better diversified in the upcoming months.
That’s what we’re doing. Here are some things you might consider.
1) Focus on things you can control. Even if you can’t control the macro economy, you can still make the following “no brainer” financial moves. None of them require a big dollar investment and they all help streamline your money management.
1) Get no fee checking accounts
2) Maximize the return on your savings accounts by comparison shopping
3) Pay off your high interest debt
4) Build up an emergency fund
5) Automate your savings via direct deposit.
2) Be tax efficient. Federal and state income taxes can be one of your biggest expenses. If you want to improve your take home pay, try maximizing your 401k or 403b contributions, researching tax deductions, itemizing on your taxes or looking into tax exempt investments. Remember, every dollar you can legally shelter from Uncle Sam is .28 cents you can keep in your pocket! Tax efficiency is so powerful that in some cases learning to navigate a 1040 can be an excellent return on your time.
Best,
James
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