If the current financial news has your head spinning, you're not alone. Every day seems to bring new statistics, for better or worse. One pundit says get out of the market, another says stay the course. For some people, all the ups and downs are simply paralyzing.
While we're all looking for the silver lining, there's no one word of advice that will work for everyone. Where you are in life -- your age, your goals, how much you've saved -- is a key factor in how you respond to today's economic turmoil.
And although it may seem easiest to throw away all the rules and simply say, "today is different," I still believe there are some basic tenets of financial discipline that can work in your favor. Whether you're in your 20s, 40s or facing retirement, here are some guidelines for keeping your head above water and staying on track.
Ages 20-35. This could be a buying opportunity.
Many young people have felt priced out of the market. Well, things have changed. As stock prices drop, this may be a great opportunity to get started. That said, you still have to be cautious. Although you have a long time ahead of you to invest -- and that's crucial to riding out market ups and downs -- before you "jump in," you need to make sure you have the rest of your financial house in order. To me that means:
-- Having enough money in a very liquid savings account or money market fund to cover three to six months' living expenses.
-- Paying off high-interest consumer debt such as credit card balances and car loans -- and staying out of debt.
-- Contributing to your 401(k) or other employer-sponsored plans at least up to the company match.
If you can check off all of the above, you can then consider how to save and invest more in hopes of taking advantage of market lows. Yes, stocks are volatile over the short-term (so you shouldn't be putting the money you might need in the next three to five years in the stock market), but long-term they remain the key to portfolio growth and have dramatically outperformed bonds and cash over time. Having a long time horizon is a No. 1 consideration, but you also have to consider how much risk you're willing to take. Can you stomach the rollercoaster ride? If not, you need to carefully consider how much you want to invest in stocks.
But whether or not you decide to invest in the stock market now, don't stop saving. If you save just 10 percent of your annual salary now -- and keep saving that amount consistently -- you may never have to increase the percentage to have a secure retirement. When it comes to long-term growth, your youth creates your real opportunity, no matter what the market is doing.
Ages 35-45. Keep your priorities in sight.
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