This article appeared on the Newsweek blog back in January of this year, well before the financial collapse – but its basic points are spot on.
A Recession Handbook
By Linda Stern
Let Ben Bernanke worry about the world—you worry about your wallet. Some economists are predicting the first U.S. recession since 2001’s slide, when the stock market dropped as much as 30 percent, personal income fell sharply and more than 2 million jobs disappeared. It’s nice that Washington wants to throw some stimulus your way, but don’t bet everything on that $600-per-taypayer check. Here’s how to protect yourself from bad times.
Protect your job. Stay visibly busy, says New York headhunter Stephen Viscusi. The first employees to go during a recession are the high-maintenance slackers. Come in early, leave late, eat lunch at your desk and try to figure out how you can make your boss’s life easier and more profitable. Update your résumé with all your current skills and accomplishments, even if you’re not planning on job hunting. You can post that résumé, absent your current employer’s name, at online job sites like Monster.com, just to see what else is out there. If you’re ready for a change, Vault.com reports that health-care and sales careers are the most promising and protected during downturns.
Protect your portfolio. It’s a little too late to sell off your stocks: now you stand a good chance of selling low and then trying to buy in high later. So stick with your plan, and use Wall Street’s dismal days to cherry-pick bargain stocks for the next expansion. It always comes, says Sam Stovall of Standard & Poor’s, who points out that most bear markets recover in less than a year. Which stocks do best when the economy is at its worst? Alcohol, tobacco, health care, gaming, utilities and consumer necessities. S&P is recommending Budweiser, Colgate-Palmolive, LabCorp of America and Altria as some promising picks.
Don’t rush into bonds, and be especially wary of bond mutual funds, counsels financial planner Sheryl Garrett of Shawnee Mission, Kans. With interest rates low, yields aren’t worth the effort. And once the economy strengthens enough to see higher rates (which are necessary to keep pulling in foreign investors, too), the value of those bonds, and the funds that hold them, will fall.
Protect your pocketbook. Make paying down your debts a priority, counsels Garrett. Kill the credit-card balance as quickly as possible, even if you have to give up new clothes and nights out to do it. You can even draw down your emergency savings account to pay off the credit card, as long as you keep the card balance at zero after that. Then you could use the card in an emergency until you rebuild the fund. Apply for a home-equity line of credit, so it’s available for emergencies, but don’t use it. Consider refinancing your home mortgage while the Federal Reserve is holding rates down, especially if you have an expensive or risky loan now. Don’t be shy about holding cash in safe, stable, boring spots like FDIC-insured bank certificates of deposit.
Protect your psyche. Remind yourself that recessions are a normal part of a healthy economic cycle, and resist panic. To stay calm, write a list of all the extra ways you could make or save money in a pinch: share a car or rent out a room of your house. When you have options, it seems less scary.
And don’t feel guilty about disappointing our nation’s leaders if you use the stimulus package to put your financial house in order. When that government check comes, probably sometime in March, don’t spend it. Use it to pay down your credit-card bill, or put it to work in your retirement- or college-savings account. Think of it this way: if you’ve got debt, you’ve already done your patriotic duty by buying all that stuff in the first place.
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