In life, it is only natural to react to the environment around you. In todays financial environment, people are reacting negatively. The news torments viewers daily with poor economic performance, dipping stocks, and major financial institutions falling apart and behaving poorly. In the past year, the net worth of American households have dropped by the most ever in over half a century. The FED reported a 9% drop in American net worth in the third quarter. America's net worth as of April-June 2007 was valued at over $64 trillion. Today, that value is down to just over $51 trillion.
Despite things being so bad, it is important that investors not over-react. Financial professionals have identified 5 investing mistakes not to make during this rough patch in the economy:
1. Dont wait it out - This doesnt mean dump your portfolio but it may be a good time to reallocate your current funds. Also, make sure to diversify your current position.
2. Dont dump your 401(k) - Dont pay too much attention to its current situtation but dont forget about it either. Dont pass up the chance for free money with employee matching plans. Consider just putting in up to the matching point.
3. Dont hide behind CDs - Although they are relatively safe, they yeild very low returns and should be considered short term.
4.Dont think outside the box - Get back to basics. Now is not the time to get creative and maybe refer back to investments that do well when stocks are performing poorly (such as gold).
5.Dont favor yor mortgage over your emergency fund - In case you lose your job, investors need to make sure that emergency stash is still there and available for at least 6 months.
Finally, it is always tempting to focus on the now. However, it is more important, especially financially speaking, to plan for the long term and the future. Keep track of your investments. Based on your current financial position, try to predict where you will be by retirement and if you will have enough to live the way you want to when that day comes.
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