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Archive for Monday, November 26, 2001

Here are some ways to survive tough times

November 26, 2001

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1. Avoid irrevocable decisions. Identify decisions that can't be sidestepped and postpone the rest for a less emotional time.

2. Identify where you could scrape up cash fast. Could you sell investments or company stock? (Don't forget to set aside cash to pay taxes.) Could you borrow from family and friends or against your home or 401(k)? Consider taking out a home-equity line of credit before you get laid off.

3. Consider refinancing your mortgage. Interest rates on 30-year fixed-rate loans are near a 30-year low.

4. Marshal your severance package. Reset your boundaries so the money doesn't run out before you line up a new job.

5. Preserve your 401(k) stash after a layoff. Too many workers fail to roll over their 401(k) into an IRA, triggering taxes and early-withdrawal penalties. Roll over the full amount and siphon off what you need later to minimize taxes and penalties.

6. Get a handle on debts. If you can't pay in full, at least stay current with minimum payments. Contact creditors and work out payment deals. Be prepared to make smaller payments to your 401(k) and employee stock purchase plans until you pay debts.

7. Get a grip on spending. Track where your money goes, and identify places to pare and what compels you to splurge. Plan monthly spending.

8. Prepare for a bear market. Buy-and-hold investors who misinterpret a dip for the market bottom can be punished. One strategy: Diversify so that you're better cushioned for the long haul. Otherwise, consider adopting more of a "trading mentality" and be willing to buy, sell and buy back a stock, says Dave Rahn, co-founder of Avalon Capital Management.

"You have to take the profits where they are and not be focused on, "Gee, I can buy Cisco and ride it 10 years.' That's not going to happen."

9. Get realistic. Think again if your retirement hinges on high double-digit investment returns. You might need to save more, work longer or cut back your plans.

10. Do a gut check. Don't stop contributing to your 401(k) or college savings. Instead, ratchet back investment risks.

"When you're afraid to open your brokerage statement, that is not investing. That is denial," says Tobin S. Smith, president of Wave Capital Management.

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