The financial experts may not be calling this a recession, but it sure feels like one. You know that sinking feeling that comes with self-imposing questions like is my retirement money safe or could I lose my job? They are valid considering that the number of unemployed people rose to 10.1 million in October 2008 and the stock market continues to fall every week. "Technically, a recession is when you have two consecutive quarters of negative growth," explains Melody Hobson, president of Ariel Investments L.L.C. in Chicago. Even still, it's going to be a bit bumpy, so ESSENCE.com asked Hobson for a few tips on riding out this financial storm.
1. Stay calm. The average 401(k) plan is down somewhere in the neighborhood of 19 to 25 percent through last week. I wouldn't look at that number and say, "Oh my God, what am I going to do?" she says. "The average 401(k) account is not down as much as the overall market, which is down 40 percent. If you are younger, you have years to ride out this volatility."
2. Stay invested. "Market cycles are a normal part of market returns. Bull markets follow bear markets, bear markets follow bull markets," says Hobson. But don't try to time the market. "The University of Michigan did a study where they looked at 41 years of stock market return. They found that 90 days represented 96 percent of the return." Translation: If you had stayed invested during the entire time period, your return was about 10.8 percent, but if you missed the 90 best days, your return dropped to just over 3 percent. In other words, you have to play to win.
3. Keep your money in the bank. "Most U.S. banks are fundamentally strong. Make sure you are in FDIC insured bank, which now insures your deposits up to $250,000 through December 31," Hobson says.
4. Be wary of financial scams. There is a lot of phishing (scams designed to steal your identity) going on, on the Internet. "I even got something from someone pretending to be American Express," she says. Be careful of people playing on others' financial fears. Do not respond to any e-mail with your personal information.
5. Review your asset allocation. You don't want to make any big wholesale changes but you want to make sure you stick with the asset allocation you set out in the beginning and that you rebalance around that.