Recession fears: Protect your nest egg

January 25, 2008 6:36:22 AM PST
Jason Tyler, Senior Vice President and a member of the Investment Committee at Ariel Mutual Funds, has some tips to stay on track through this economic rollercoaster. What does the economic stimulus package really mean for me?

The economic stimulus package means that the government is trying to spark the economy by rebating taxes to consumers.

  • Checks will not arrive immediately
  • Good short term boost but it doesn't get us out of the woods
  • Not the same as economic growth
  • What should we do with the money?

    If you are carrying a credit card balance, you should use this rebate to reduce it. If you do not have high interest debt, take advantage of this opportunity and increase your savings.

  • Reduce high interest rate debt
  • Good opportunity to increase your savings
  • How do I protect my 401K?

    First, it is important to remember not to panic. Do not make significant changes based on the current dip in the stock market. This is a natural occurrence and the economy will eventually turn around. Overreacting and selling your stocks now can get you into trouble

  • Do not panic
  • Do not make drastic changes
  • Is diversification the key right now to investing?

    It is always important to diversify your investments. However, now is not the time to create a more diverse portfolio. As always, pick a handful of managers to invest with or if you are investing on your own, choose 20 to 30 stocks that you have done a lot of research on and feel you know really well. Make sure you look for companies with good balance sheets.

  • Diversity in your investments is important.
  • Do not "overdiversify"
  • Do your homework
  • Should you stop investing in the US stock market this year considering the bottom may drop out and place that money in market funds instead?

    Absolutely not. This is the time to be moving your money from money market funds into equity markets.

    Yes, it is true stocks could go lower but many indices are down 10% or more this year. This tells you that there is a better margin of safety now compared to a month ago.

  • Do not flee from stocks on market weakness
  • Better margin of safety compared to a month ago