Ross Levin, a certified financial planner and president of Accredited Investors says in a difficult economic environment such as this, people in a relationship can react differently to their financial circumstance and communication can become very strained. In order to avoid tension, it is important to step back and ask each other about where your finances are now and what are your future objectives?
“For most people not much has actually changed.,” says Levin. “They didn’t know how much their retirement would be ten years ago and they still don’t.”
Love-Hate Investment Debate
Despite that, however, people often panic, and make unnecessary changes that Levin says “act against their own self interest.”
One such mistake is becoming too conservative with their asset allocation too quickly.
Elisabeth Plax, a certified financial planner and president of Plax & Associates Financial Service, says it is often the case in volatile markets that one person may want to sell everything and go completely into cash, while the other partner may want to ride out the turmoil.
While moving to cash may seem like a flight to safety, it is not a good solution as it can make it difficult for you to generate the returns you need and will prevent you from taking advantage of a recovery once it comes.
The trick, she says, is to compromise by incorporating a middle-ground investment strategy that moves some money to more conservative investments such as fixed income while maintaining enough in equities so you can take advantage of a recovery.
Asset allocation and balanced funds are good options that offer a high level of diversification tailored to many different risk tolerances, she says, as are some long-short funds, which can offer more protection on the downside Saul Simon, a certified financial planner and private wealth adviser with Simon Financial Group, says another major mistake people often make during these times is to stop investing in their 401(K) retirement plan.
In fact, he says, there is at least one good reason to keep investing.
“If you are adding money to these accounts, there is major dollar-cost averaging taking place,” he says, which entails investing in small, regular increments. With price of many securities so depressed, now is actually an opportune time to do this.
Plax agrees that halting these contributions is a big mistake that too many people make.
“Don’t stop contributions to your 401(k)s,” she says. ”Yes, they will go through a horrendously volatile cycle but in a few years from now you will be happy to have bought shares at such low prices,” adding it is important to keep you eye on the long term and don’t give up on stocks because you need the performance.
While not making unnecessary changes to your portfolio is half the battle, advisors say there are a few proactive steps that you can also take, which may be able to help your save a few dimes if money is getting tight.
Savings At Home
According to Levin, one option to consider is refinancing your home. However, you had better do your homework first as this isn’t for everyone.
Currently, homeowners can get some very attractive rates on conforming loans—which are those valued at $417,000 or less. Depending on your current rate, refinancing can save you a lot on your interest payments.