• Introduction
• Unit 1: Basic Building Blocks of Successful Financial Management
• Unit 2: Investing Basics
• Unit 3: Finding Money to Invest
• Unit 4: Ownership Investments
• Unit 5: Fixed-Income Investing
• Unit 6: Mutual Fund Investing
• Unit 7: Tax-Deferred Investments
• Unit 8: Investing Small Dollar Amounts
• Unit 9: Getting Help: Investing Resources
• Unit 10: Selecting Financial Professionals
• Unit 11: Investment Fraud

• Study Guide
• Action Steps
• Monthly Investment Messages
• Glossary

Investing For Your Future Monthly Message

December 2008

Best wishes for a very happy holiday season and a healthy and prosperous new year. Many people are hoping that 2009 will be a much better year financially than 2008. Between the high number of home foreclosures, rising unemployment figures, declining stock market prices and home values, bank and investment firm failures, a credit crunch, and rising costs of basic necessities such as food and heating oil, some would argue that we haven’t been experiencing just a “perfect storm,” but, rather, a “perfect tornado.”

Negative economic indicators are reflected in the findings of recent studies of consumer financial behavior. According to the 2008 Financial Literacy Survey by Princeton Survey Research Associates, one in every 10 Americans with a mortgage (roughly 10 million adults) reported being late or missing a mortgage payment last year. Even more worrisome, more than one third, or roughly 76 million adults, said they do not have any non-retirement savings and only 69% (59% of those in the 18-29 age group) report paying their bills on time. More than a quarter of the 1,001 people surveyed were currently not saving money for retirement.

What should you do? At this time of year, it is common to take stock of one’s financial progress and set resolutions for the coming year. Below are ten “tried and true” financial planning recommendations that are as appropriate during a “perfect tornado” as they are for a roaring bull market, and, perhaps, even more so:

1. Spend Less Than You Earn and Avoid Excessive Debt- You cannot borrow your way out of a recession. If household income is reduced due to unemployment or reduced investment earnings, or if household expenses continue to rise, adjust your household spending plan (budget) accordingly or prepare one for the first time. Rutgers Cooperative Extension has several online resources. To download a “paper and pencil” worksheet, visit http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf. To download a spending plan spreadsheet that uses pre-programmed Microsoft Excel® software to make income and expense calculations with a computer, visit http://njaes.rutgers.edu/money/templates/Spending-Plan-Template.xls.

2. Be Future-Minded- Research indicates that, at every income level, people who are “planners” are more successful financially and feel better about their financial situation than those who do not plan ahead. Planning for the future includes calculating the savings required to achieve future financial goals and addressing potential future challenges such as the cost of long-term care and estate planning.

3. Save and Invest Regularly- Dollar-cost average by making regular deposits to purchase stocks or mutual funds at regular time intervals (e.g., $50 a month). In declining markets, you’ll buy more shares with your fixed deposit. Also make deposits to savings plans (e.g., a 401(k) available through your employer) and rebalance your portfolio as the market changes the percentage in stocks, bonds, and other asset classes.

4. Protect Against Large Financial Losses- Purchase adequate insurance to protect against potential “big dollar” losses. These include disability, liability, catastrophic medical expenses, the death of a household earner or family caregiver, and major damage to, or the total destruction of, your home.

5. Reduce the Risk of Identity Theft- Request a credit report annually from each of the three major credit bureaus, Experian, Equifax, and TransUnion. See www.annualcreditreport.com. Review it carefully and look for unusual listings which may indicate that credit accounts were fraudulently opened in your name. In addition, shred documents that contain sensitive data and be careful about posting information online.

6. Follow Recommended Financial Practices- Studies from a number of sources indicate that many people do not put into practice actions that are frequently recommended by financial experts. These include making a written list of financial goals with a date and a price, setting aside 3 or more months of expenses for emergencies, calculating net worth periodically, and following a spending plan or budget.

7. Build Human Capital- One of the best defenses against unemployment is to be a productive worker with current job sills that are in demand by employers. Leadership skills and the ability to work well with others are also important. Another good way to build human capital is to practice recommended health habits.

8. Make Compound Interest Your Friend- Invest early and often, particularly in tax-free (e.g., municipal bonds or bond funds) or tax-deferred (e.g., IRAs) investments, where income taxes are not owed or are postponed. Avoid tapping retirement savings before retirement unless absolutely necessary.

9. Develop Focus, Optimism, and Organizational and Negotiating Skills- All of these personal traits have been associated in research studies with financial success. Granted, optimism can be in short supply during a bear market, but history often shows that investors who “hang tough” (read: do not panic and sell investments at a loss) are rewarded during subsequent market rebounds.

10. Know Where to Go for Help- It’s important to know where to find reliable financial information because personal finance topics (e.g., tax laws) are always changing. For access to personal finance experts from the Cooperative Extension System who can answer your personal finance questions, visit http://www.extension.org/personal_finance.