Finding Peace of Mind Amidst the Panic II

Part Two

Let's continue our discussion of what to do with your investments in this time of economic turmoil by touching on four important points:

1. Cash has Risks too

Watching the market these days is enough to make anyone feel like running away from it - straight to cash! BUT HOLD ON! Believe it or not, cash (money markets, CDs and treasury bills) has its' own risks and having too much of the stuff can present problems.

For example, did you know that while the Schwab Government Money Fund has a yield of 1.23%, inflation itself is running at a rate of 4%!! This means your return on cash would be MINUS 2.76%! Oh, and don't forget, taxable accounts mean you'll also have to pay taxes on that money, which makes your return even worse!

Now, it's true that people who are going to need their money in 0-5 years should have more cash on hand. But for those of you with a time horizon of 5-10 years, think about slowly moving your money into stocks.

2. Follow the Quality & Diversification Rule

Now's the time to check the QUALITY of your investments. With everything currently on sale in the stock market, it's important to make sure you own the very best of what's out there. By diversifying your portfolio you ensure you own a variety of companies that pay good dividends, have low debt AND a solid cash flow. It's a winning combination for any investor!

3. Too Much of a Good Thing can Hurt you

You work for a public company and between investing in employee stock option plans and receiving company bonuses in stock, you inadvertently find yourself with more than 10% of company stock in your portfolio. STOP! This is a classic example of having all your eggs in one basket and NOT a good idea.

"Well," you say, "I've owned this for years and it always comes back." Yes, BUT it also may not come back by the time you're ready to retire! Instead of getting stuck in this type of scenario, consider selling off a little each year to diversify your risk.

4. Watch what you're watching

Finally, (and perhaps most importantly), LIMIT THE AMOUNT OF TIME YOU WATCH CNBC! These programs are designed to keep your eyeballs glued to the set - they couldn't care less about your personal portfolio!