December 23, 2007 in Business

Protect yourself

Teresa Dixon Murray Newhouse News Service
 

A few short months ago, nobody was really thinking about the possibility of a recession. But during the last few weeks, economic gurus have started putting horse-race type odds on the likelihood of tough times. And now, you have the Federal Reserve dancing around the possibility of the Big R by saying in its clearest Fedspeak that the “deterioration in financial market conditions” means the outlook for economic growth is uncertain. None of us has a crystal ball. But just in case the economy does roll into another recession next year, here are 17 things you should be doing right now:

1. If you own a house, get a home equity line.

It won’t cost you money unless you use the credit line. But this way, you will have access to money if you lose your job or hit an emergency. If you wait until you’ve been laid off to apply for the credit line, “good luck trying to get a loan if you’re unemployed,” said Les Szarka, president of Szarka Financial Management in North Olmsted, Ohio. Most banks won’t charge you a fee to set up an equity line or require a minimum withdrawal.

2. Make yourself invaluable at work.

Some layoffs are done by seniority, but many companies take performance or position into account. If you have skills many of your co-workers don’t, it may be difficult for your company to let you go.

On the other hand, if you’re a pain at work and you slough off, Szarka said, that may make it easier for management to tell you goodbye. Make a diligent effort to be at work on time or early, and take on extra tasks or responsibilities, he said

. 3. Favor large-cap investments. When the economy is at the end of a cycle of business growth, large-cap stocks tend to do better than mid- and small-caps, said Brian Dean, a chartered financial analyst and executive vice president of CBIZ Financial Solutions in Cleveland. Aside from the cycle, small-caps and mid-caps have done so well for so long that “it’s time for those large caps to come into favor,” he said.

4. Get organized.

Organize your finances and outline your debts and other expenses, said Jay Seaton, president of Consumer Credit Counseling of Northeast Ohio. Part of this exercise means getting your free copy of your credit report. Get a report online at annualcreditreport.com or call 1-877-322-8228. You will have to give information including your Social Security number.

5. Develop a budget.

Look at how much you bring in, how much you normally spend and the minimum you need to pay your bills and live.

Developing a budget is often dreaded, but it can be empowering, said Jan Litterst, a financial adviser with Edward Jones in Westlake, Ohio. “Instead of looking at a budget negatively, you can look at it positively: How will your money work for you?”

6. Identify all of your assets.

This includes your 401(k) and other retirement accounts. While you shouldn’t tap these under nearly all circumstances, if you lose your job and the bottom falls out, they could be a last resort.

7. Pay down debt.

You should position yourself now to survive any reduction in hours or overtime or overall pay. Pay down as much debt as possible so you will have fewer expenses, Seaton said. Paying just an extra $10 or $15 a month on a credit card helps, he said.

8. If you’re older, scale back stock market exposure.

This is especially true if you think your job might be at risk, Dean said. If you’re in your late 50s, for example, you might be planning to work for another seven years or so. That’s normally a long time horizon for investing and most advisers would recommend you have a lot in stocks. But if you lose your job, you may not be contributing to your retirement account for much longer, Dean said, and what’s there now might be all you have for retirement. So you might want to look at being a little more conservative.

9. Delay any major discretionary spending,

This is especially true if you don’t have a healthy savings account and your job isn’t rock solid. If you were one of the last people hired at your company, or if you’re in a vulnerable department, that qualifies as being at risk, Szarka said.

10. Thin down U.S. stocks in your portfolio.

The U.S. market stands a good chance of being flat for the next six to 12 months, even without a recession, Szarka said. It’s a presidential election year with a full slate of viable candidates, and “all you’re going to hear next year is negative news.”

If you have, say, 70 percent in U.S. stocks now, you should scale back radically to 35 percent, Szarka said. If your risk tolerance is neutral, the rest could go in international stocks. If you’re conservative, you could put it in closed-end bond funds.

11. Increase your rainy day fund.

Or start one if you don’t have one. Most experts urge people to have enough money set aside to cover at least three months’ worth of expenses. If you can’t build up that much, don’t toss the whole idea aside: Any savings is better than no savings.

12. Use low-interest balance transfers for credit card debt.

If you see a lower balance transfer offer and you understand the terms, go for it, Seaton said. It will help you pay down your debt faster, and you may not qualify for a new card later if you lose your job.

13. Look for new sources of income.

Everyone, especially if you’re the only one at your house who is employed, should look at turning a hobby into a side business or try to develop a new skill with a part-time job, Litterst said. If you lose your main job, you will be hurting, but it won’t be a disaster if you have something else producing money.

14. Cut back company stock.

Ideally, you should avoid having more than 10 percent or so in any one company stock. That’s especially true if the stock is in the company where you work, Dean said. If you get laid off, it will be a double-whammy if the company’s stock simultaneously slides.

And watch even if your employer is laying off others. That could signal slower times and be a reason to sell some company stock.

15. Take profits out of your investments.

If you think the market is going to go down and you can’t stomach that, move some money. If you take your profits out and leave in what you started with, you will still have your profits if the stock goes down, Litterst said. Or if you take out what you put in to begin with, you’re protecting that. Either way, it means “you didn’t fail. You made a nice amount of money and it’s still working for you.”

16. Go from part time to full time.

If you’re in a two-income household and one person is working part-time, maybe that part-timer should try to go full time, Szarka said. That would make that person eligible for benefits, mainly health insurance, if the primary breadwinner loses his or her job.

17. If you get big income tax refunds, adjust your withholding.

That way you put more in your pocket each payday, Seaton said. It may be only a few extra bucks each week, but if times get tight, you may need that for necessities.

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