Whew! 2008 is finally behind us and what a year it was! The stock market fell 40%; millions of people lost their jobs; and some of our top executives became the ‘beggars of Wall Street’. So what is 2009 likely to bring us? While it’s impossible to know, my best guess is that things will get worse during the first half of 2009 and then begin to recover before the end of the year. For you to succeed in 2009 requires that you develop a plan of action, yet remain flexible. Here are 5 steps that will insure your long-term financial success:
- Be in the game. Realize that to win the financial game you must be on the field of play. Too often people say something like, “Stocks are a bad investment”, and they’ll use this line as an excuse to do nothing. The surest way to financial success is to keep systematically investing through the good and the bad markets.
- Play the percentages. Commit to investing a certain percent of your income each month. Assuming you are just beginning to save, a good guide would be 10% of gross income if you are in your 20’s; 15% if you are in your 30’s; and 20% if you are in your 40’s. If you are investing in your company’s 401-k or similar plan, you can count your company’s matching contribution as part of your total percent invested.
- Prioritize your investments. Tax deductible retirement plans are still your best choice for investing your money. Receiving a tax deduction for your contributions plus tax-deferred earnings on interest, dividends and capital gains allows your money to accumulate at a much faster rate than after-tax investing. This is especially true if you receive a company matching contribution.
- Automate your way to success. The worst strategy is the one so many people use and that I call the ‘What’s left over’ strategy. They pay everyone else first and then invest whatever is left over. You know the problem with this strategy. It is vital that you automate your investment plan. For investing in your company 401k plan, this is easy since the company automatically deducts your contribution from your payroll check. For personal investing, set up an auto-deduction from your checking account to your investment account.
- Have faith. Don’t give up on stocks. At this point many people think that our world has come unglued and there are no safe investments except, perhaps US treasury bonds. In fact, what we are experiencing is an abnormal contraction following a period of abnormal expansion that was largely caused by unfettered greed and mismanagement by many of our countries top executives. This too will pass and ultimately our country and our public and private companies will be stronger for having gone through it all.