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Jittery about the economy? Here's what to do

- Alan Lavine and Gail Liberman

If all the news about the economy is making you jittery, your first step is to analyze into which category your family falls.

Once you've done that, we'll offer up some ideas. But check with a financial adviser for information more specific to your situation.

  • Your family barely has enough money to pay bills, and seeks a quick way to become more financially secure. Prescription: Hold onto your emotions. Stay away from lotteries. Stay away from exotic investments. Instead, pay off your debt, and start putting every penny of extra cash into a safe, preferably government-backed liquid investment. Suggestions: A bank money market account, savings account or checking account. Shop for the highest yield you can find.

  • You're in your 30s or early 40s, and have some savings to cover bills and emergencies. One or both spouses are earning enough to pay all bills. You even have a 401 (k) or other type of retirement account. You sure would like to earn more, but you're fearful of continuing to invest in stocks with the market nose-diving. Don't be. Instead, keep dollar cost averaging or investing a specific amount monthly into a well-managed stock mutual fund. When the market drops, you'll automatically be buying more shares, so that when it rebounds, you'll be pleased at how much more you'll have! First, put a specific amount into stock funds in your retirement account--particularly if you're getting a matching contribution from your employer. Put some, provided that your children are young, in a stock fund toward your kids' college funds. We favor stock index mutual funds with no loads or commissions. You can track down no-load funds at www.mfea.org. Don't be like the reader's daughter whose fear caused her to stop dollar cost averaging into a stock mutual fund.

  • You're in your late 40s or older and hope to retire soon. Your children are getting ready to start college, or they're in college. You fear you may have too much in stocks. In that case, you may want to readjust your holdings and/or shift new money into buying bonds, which are a bit less risky. We favor medium-term AAA-rated individual bonds, rather than bond mutual funds. Reason: With a bond fund, you can lose principal. With a bond, you get your principal back when a bond matures. Beware. With a bond, you run the risk that the company can fail, and a high yield often signals added risk. If a company fails, bondholders get priority over stockholders when it comes to getting paid from assets. The lowest-risk bonds are U.S. Treasury bonds, which carry a U.S. government guarantee. Other attractive investment options: CDs and money funds.

  • You're in your 50s or older, you have kids and you're loaded! In this case, now could prove a great time to start considering estate planning. While the estate tax currently is slated to be repealed for those who die between 2009 and 2011, most believe it will be reinstated. You're allowed to give $12,000 annually per person per donee without filing a gift tax return. In addition, you may give another $1 million over your life without paying gift tax. When asset prices, like those of stocks, are low, it could prove smart to get that particular asset out of your estate before it appreciates, and the higher value becomes subject to estate tax. Consider consulting first with an estate planning attorney.


    Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.

    To read more columns, please visit the column archive.

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