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Cheat Sheet

Investing in an Uncertain Economy For Dummies

During uncertain economic times, you can soothe your concerns by taking some financial precautions to protect yourself and your money. Before you invest, evaluate your financial risk profile to develop a portfolio based on the lowest volatility, and locate a reputable financial advisor using some helpful web resources.

How to Ease Financial Uncertainty

Life can throw you some financial curveballs, but you don't have to be at the mercy of financial markets even if you're not able to control them. To protect against financial uncertainties, use the following strategies:

  • Plan for life's certainties and prepare for life's uncertainties.

  • Invest in and protect your ability to earn money; it's likely your most valuable asset.

  • Adequately insure yourself, your stuff, and your income stream.

  • Minimize or eliminate debt, and focus on building a great credit score.

  • Maintain an emergency reserve fund.

  • Invest for your goals, time horizon, and risk tolerance.

  • Diversify your portfolio across a broad mix of asset classes.

  • Monitor and rebalance your portfolio to maintain your target asset allocation.

Evaluating Your Financial Risk Profile during Economic Uncertainty

Have realistic expectations of market behavior during an uncertain economy so you're ready to implement an appropriate investment strategy. Consider three perspectives that together make up your financial risk profile and design your investment portfolio based on the lowest level of volatility:

  • Risk capacity: How much risk should you take, assuming a worst-case scenario? Take into account your age and family situation, your income, and your other assets and resources. Keeping these factors in mind, how much risk should you take to achieve your goals?

  • Risk tolerance: How much risk can you take? Consider your ability to stick with your investment plan without losing sleep or getting stressed out. Do not take on any more risk than you can comfortably tolerate.

  • Risk required: How much risk must you take? You are exposed to certain risks whether you like it or not. However, many financial risks can be minimized or avoided. To do so usually means that you must accept a lower return on your investments. To meet your personal goals and objectives in the time frame you'd like, you need to take some risks, but take no more risk than you must to achieve your goals.

Web Resources for Finding a Financial Advisor

Gather as much information as possible when you're looking for a financial advisor to invest your money—especially during an unstable economy. Use the following web resources to locate and research a credible financial advisor:

  • Financial Industry Regulatory Authority (click on Broker Check): The Financial Industry Regulatory Authority (FINRA) is the new name for the National Association of Securities Dealers (NASD). If a financial advisor earns commissions on the sale of investment products they must be registered with FINRA. The Broker Check tool on the FINRA site can be informative but it is limited. Don't rely on this tool as your only method of checking out a financial advisor.

  • Securities and Exchange Commission (SEC): People who get paid to give advice about investments generally must register with either the SEC or the state securities agency where they have their principal place of business. Be sure to request and read any prospective advisors' ADV forms.

    The Form ADV has two parts. Part I has information about the advisor's business and may list problems the advisor has had with regulators or clients. However, the advisor is not required to report some things that you'd view as essential information in selecting an advisor. Part II outlines the advisor's investment services, fees, and investment strategies. Ask any prospective advisor for their ADV Part II and make sure that you read and understand what it says.

  • Certified Financial Planner: The Certified Financial Planner (or CFP) designation is the most widely recognized educational credential for financial advisors and planners. Visit www.cfp.net/search to locate a CFP practitioner in your area.

  • National Association of Personal Financial Advisors: The National Association of Personal Financial Advisors (NAPFA) is the country's largest membership organization of Fee-Only® financial advisors. To qualify for membership in NAPFA an advisor must provide comprehensive financial planning services, adhere to the organization's Fiduciary Oath, maintain all required licenses and registrations as a financial advisor, submit a comprehensive financial plan for peer review, and charge their clients exclusively on a Fee-Only® basis.

  • Garrett Planning Network: The Garrett Planning Network is the country's premier membership organization of Fee-Only® financial advisors who focus on providing competent objective advice to people from all walks of life. Members must be CFP professionals or in process of obtaining their CFP designation, abide by the CFP Code of Ethics and Professional Standards and the NAPFA Fiduciary Oath. Garrett advisors are prohibited from imposing any minimum fees, income, or asset requirements on the majority of their client engagements.

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