This is a follow up to my last entry, which was rather somber. Sorry about that but these are somber times for some people. Although this doesn't necessarily apply to us here in NZ, newsweek published an article about how to survive the recession. I think it's a good read because we can apply some of the tip later on when we are in a recession (or even now since there's a chance we're going to enter one. Some of the good points in the article are:
Leave your retirement investments alone: Right now the share markets are spiraling downwards because of the credit crisis in America. But this isn't a reason to sell since they'll rebound and in 20 years or so you wont notice the loss since your average return will be high. In fact, if you make regular contributions, now would be a good time to make extra contributions since the price of shares now are quite a bargain (relative to probable prices in the future). If you have kiwisaver you can do this easily through internet banking.
Pay down costly debts: This is what I was talking about in my last entry. This applies in good times as well as bad. Since interest rates are so high at the moment, now is a great time to get them paid off.
Stretch out cheap debts: If you have a cheap interest rate, banks and companies will probably be willing to waive fees for voluntary repayments. Why? Because it's a liability for them. They can borrow out that money at the current higher interest rate. People would be willing to pay you to have debt at your low rate, so make sure you take advantage of it and keep it for as long as you can. If you can make extra repayments, pay off other debt if you have it, or put it in the bank (if the interest rates are better), use it towards an emergency fund, or buy things you think you will need in the near future. Take advantage of the cheap debt (it sounds bad, but it really isn't).
Hunt for bargains: The stock prices of the majority of companies has dropped. Some haven't been affected by the credit crisis and have just artificially dropped because of investors' fears. So there are a lot of bargains out there waiting to be discovered. But you must research and understand the company is undervalued before buying a bulk of their shares since it goes against diversity principles. This leads to the next point...
Avoid the urge to get more adventuresome with your investments as a way to make back losses: Were you planning on investing in gold before your portfolio dropped in value? Or are you doing it just because everyone says you should? Or what about derivatives? Or even bank bills if you have a lot of money? NO! Don't try to make up losses by investing in something you don't understand. Go to a professional investment advisor before you do something like that and make sure you understand the risks, the possible returns, and whether it's a good addition to your portfolio before doing anything like that. Otherwise you may as well go and play roulette at the casino. The odds are probably the same except you'll win or lose in a few seconds instead of a few days...
That's some points the article brings up. Do you have any tips of your own? Please share them...
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