Make sure there’s a fine balance between the amount you’re putting away for retirement, the amount you’re saving for emergency purposes, and the amount you’re paying down in debt. You need to do all three.
FAMILY FINANCES TIP
Sharpen your financial knowledge and beware the subconcious thoughts affecting your relationship with money.
At its heart, the economic crisis is really a story of financial illiteracy. The most important thing people can do is learn how to speak the language of money and be aware of the scripts we recite in our heads. I use the term money scripts, because like actors we blindly act on them. ‘People like me have credit card debt.’ ‘I’ll never save money.’ ‘Investing is for rich people.’ And we all have the fear of not keeping up with the Joneses. Some people followed that script into a bad mortgage. We’ve been conditioned with these messages from birth. You need to understand how your family’s role modeling is playing out in your financial behavior. Unfortunately, so many of us didn’t learn about money in our homes growing up. Then we didn’t learn about it in school so we have no point of reference for making sound financial decisions as adults.
INVESTING TIP
Go global. Diversify your portfolio with a good mix of international stocks, natural resource holdings, and bonds.
If your time horizon allows, and you’re comfortable with a higher degree of volatility in your portfolio, then try more growth-oriented or small-cap stocks. I recommend having some international exposure, some bonds, and some investments in the area of natural resources. Those types of companies are in a growing phase. Your portfolio should reflect the fact that the world is changing and the U.S. doesn’t take up as much “space†as it used to. If you’re looking for more growth potential, look at companies in China, Brazil, and India. If you don’t know what a diversified portfolio should look like, it’s OK to seek professional help. For the 1% you might pay to a competent financial adviser, you will earn well more in additional value. Lastly, if you are really close to a goal, then you shouldn’t have your money in the stock market. If you’re about to retire you don’t want that type of volatility, so you need to look at more dividend-paying stocks. They’re not expected to grow, but they pay dividends.