11 New Rules for Fiscal Survival in a Stalled Economy A few years ago, most of us thought the troubled economy would be well behind us by now. Instead, we're stuck, stalled and struggling, and may be for some time to come.

And that simple belt-tightening, wait-and-see game plan we adopted when we believed recovery was just around the corner? Not cutting it anymore -- if it ever did.

So it's time for new strategies to win in the New Normal. Here's a rundown of ideas that once worked to which it's time to say goodbye, and the current wisdom for replacing them.


Old thinking: Buy and hold.

New thinking: "Buy and hold is dead," says John Papa, president of Diversified Planning Strategies. "This hasn't really worked since January 2000. The S&P's capital loss is between 20% and 25% from Jan. 1, 2000 to today."

Those who invested in companies once viewed as safe, such as Eastman Kodak, (EK) Enron, General Motors, (GM) and Lehman Brothers, and then followed the buy-and-hold strategy, would have lost most, if not all of their investment, says Marvin Doniger, author of A Common Sense Approach to Successful Investing.

Any number of issues can turn a good stock into a bad one as times change, he notes: A dependence on discretionary spending when the nation is tightening its belt, a business model made obsolete by innovation, oppressive legacy costs or -- in the case of Enron -- the discovery that the entire enterprise was founded on fraud and loose accounting.

"Portfolios need to be regularly reviewed to evaluate a company's strategy, competitive advantages and valuations," Doniger says.


Old thinking:
Bonds are a safe haven.

New thinking: Since 1981, interest rates have been on a long, if unsteady, decline. Now, "they have no more room to drop," says Papa. "This means bond values will begin to decrease as interest rates rise. Therefore, retirees should no longer consider bonds to be a safe investment."


Old thinking: Dividends don't matter.

New thinking: "Move investments, including accumulated balances in 401(k) plans, into dividend-paying stocks and mutual funds -- get paid while you wait for a better market," says Bill Surko author of The Naked Truth About Your Money.

Cary Guffey, a certified financial planner with NBC Securities, sees dividend stocks as a smart move too. "Companies with cash on hand face the same low interest rates as anyone else with money in the bank. Several have elected to raise the amount they pay out in dividends to their shareholders," says Guffey.

According to Joel Redmond, a certified financial planner with Wells Fargo Advisors, from Jan. 1, 1900 to Dec. 31, 2008, a $1 investment in the broad stock market appreciated to $9.90, but with dividends reinvested that $1 would have grown to $582.


Old thinking: Make a financial plan and set it in stone.

New thinking: "Revisit your financial plan to see how five to seven years of what I call 'market melancholy' will affect your plans," says Lynn Ballou of Ballou Plum Wealth Advisors. "Then revise them for tougher times than you might have originally expected to experience. Be honest about your findings. For example: Do you need to work longer? Take a part-time job during your early retirement years? Cut back on travel? Be less generous with your kids? Face the truths and implement appropriate change."

Old thinking: Annuities are a bad investment.

New thinking: In the past annuities -- especially fixed annuities -- were thought of as underperformers. "Why would someone buy a blah fixed annuity when they make 15% in the stock market?" asks Radon Stancil, managing partner of Retirement Investment Strategies. But anyone who invested in a fixed annuity in 2000 and earned just 3% annually would have come out far ahead of someone who had invested the same amount in the market. Today for some people, steady income and modest growth is more important, given the risks associated with the stock market, says Stancil.


Old thinking:
In retirement, try not to take any money from your 401(k) or IRA until you're 70½ -- when the IRS requires distribution.

New thinking: This strategy assumes future tax rates will be the same as or lower than they are currently -- and that's not a safe assumption. "If you think future taxes will be higher, then why wait to pull money in the future and pay the higher taxes? The new thinking is to mix your distributions. Take some money from the IRAs or 401(k) and some money from non-IRA accounts. This will smooth the tax burden," says Stancil.


Old thinking: There's no investment like the good ol' USA.

New thinking: Emerging market growth will likely outpace growth of Western economies, says Harvard business professor Rob Kaplan. "As an investor, you need exposure to emerging markets as part of your asset allocation."

Not only emerging markets, but international ones in general. "The world economy is expanding outside of the U.S.," says Ernest Carerra, registered representative with JHS Capital Advisors.


Old thinking
: Wait for the perfect job.

New thinking: Just get paid. "In this economy, don't let your pride poison your prosperity," says Willie Jolley, author of Turn Setbacks Into Greenbacks. In other words, he says, any work that's moral and legal is honorable. "It's OK to take a position with a lower skill set. The classifieds are full of help wanted ads, so there are jobs out there. The other advantage to this is that, right or wrong, some companies are only hiring if you are currently employed, so at least you'll be a contender for other positions you would prefer," he says.


Old thinking: Load up on alternative investments to avoid the pains of market gyrations.

New thinking: Don't go hog wild. "Avoid the temptation. Alternative investments like real estate, commodities, and private equity are also negatively impacted by the same environment that is hurting stock prices, and, you give up liquidity," says Jeanie Wyatt, CEO and CIO of South Texas Money Management.

Quite frankly, says Doniger, "Recent events have shown that in times of uncertainty, there are limited opportunities to produce gains in the value of one's holdings."

Remember, a commodity is just that -- a commodity. "It does not earn income or doesn't pay interest. It is only worth what someone is willing to pay for it," says Guffey.


Old thinking: Give with your heart to all the charities that matter most to you.

New thinking:
Give with your head to fewer organizations to maximize the impact of your donations. With the need for help increasing, philanthropists want every gift to have an impact. Eileen Heisman, CEO of the National Philanthropic Trust, offers these quick tips for effective giving:
  • Checking reliable sources for confirmation that a charity is well-managed;
  • Ask a trusted adviser or giving expert to recommend charities that are doing good work;
  • Dedicate some time to getting familiar with the organization you'd like to support.

Old thinking: Spend, spend, spend.

New thinking:
Save, save, save. "Be more aware of your own personal budget. The old rule of having six months of cash in hand to cover expenses may not be enough in this economy," says Gloria Birnkrant, a CPA with NSBN. Don't take on new debt and do pay down what you have. Don't think of an emergency fund as optional.

"Save until it hurts," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. No one has ever said they saved too much."

Lastly, says Jolley, "Don't buy into all the gloom and doom. Realize that recessions and depressions don't last forever. It's an equal opportunity plan that impacts everyone. Don't just go through tough times. Grow through them."





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toosmart4u

The first rule should be to get rid of the republicans, they are the ones holding everything up. They are doing what they think will enhance their party at election time. Hopefully it will backfire and we can give control back to the democrats.

October 17 2011 at 9:34 AM Report abuse -1 rate up rate down Reply
1 reply to toosmart4u's comment
priority109

yeah yeah yeah yada yada yada---toooooooooooo smart to know WHERE THAT scatology is,right ? LOL--contact your 1 and only harry the body reid for further details !

October 17 2011 at 9:42 AM Report abuse +1 rate up rate down Reply
G-DAWG

all the financial wizzes forgot to mention.... BURY YOURE MONEY OUT IN THE BACK YARD IN A COFFEE CAN! at least it will be there in a month!

October 17 2011 at 5:32 AM Report abuse rate up rate down Reply
1 reply to G-DAWG's comment
priority109

no--never use a CAN---use the plastic coffee containers--maxwell house folgers etfc ones--they don't rot.

October 17 2011 at 9:43 AM Report abuse +1 rate up rate down Reply
Krisca

Yes it is time to escape, you can live anywhere in the world you want to live, South America, Central America, or Hawaii, or anywhere you want. How? Very easily, all you need to do is learn the SECRET that I teach for trading Oil and you can easily make $200 to $5,000 per day, more than enough money to live anywhere you want to live, as long as there is the Internet. Come over to my website "Oil Trading Academy", learn the SECRET, and start a new life, or enhance your current one.

October 17 2011 at 2:32 AM Report abuse rate up rate down Reply
Jay

Rule number 1 is.........get rid of Obama next year during the elections

October 17 2011 at 1:13 AM Report abuse +1 rate up rate down Reply
dvdfrnzwbr

Here's a financial strategy: Rice, Beans, Pasta, Tortillas.

October 17 2011 at 1:03 AM Report abuse +2 rate up rate down Reply
JO N RICH

All I read is doom and gloom , how will the people of the US grow when all they read is fear.

October 16 2011 at 10:58 PM Report abuse rate up rate down Reply
maxinetoneitdown

When I told the teaparty to go to hell, I didn't realize I was insulting the middle class. I hope they will forget about my disrespectful comment come election time. I should have listened to President Obama when he called for civility and to tone things down.

October 16 2011 at 9:23 PM Report abuse -2 rate up rate down Reply
maxinetoneitdown

I represent the third world state of California.

October 16 2011 at 9:21 PM Report abuse -2 rate up rate down Reply
maxinetoneitdown

I am listed as one of the most corrupt politicians. Does that surprise anyone!

October 16 2011 at 9:20 PM Report abuse -3 rate up rate down Reply
maxinetoneitdown

In the last month President Obama has travel the country, but has not visited one black community. He's basically turned his back on the very people that helped get him elected.

October 16 2011 at 9:19 PM Report abuse -3 rate up rate down Reply