Expecting the unexpected

The hardest part of financial planning is planning for the things that you have no control over. Things like the downturn in the economy, housing prices falling and natural disasters (think Hurricane Katrina and the BP Oil spill). Although you can’t account for 100% of the bad things that happen, you can prepare yourself to deal with some of the unexpected.

I recently received a newsletter from Edward Jones and one of the articles listed four things that the average investor should be concerned about and how to deal with them in today’s economy. For full disclosure, I use Edward Jones to manage my Roth IRAs, my college savings through 529s and my wife’s 403B rollover.

Economic Unknowns

• Tax Increases - limit your taxes by fulling funding pre-tax retirement accounts
• Rising Interest Rates - when interest rates go up, the value of long-term bonds can fall. That doesn’t mean you should sell them, but you will want to monitor your bond investments to ensure your portfolio remains in balance
• Inflation - stocks have traditionally offered better protection than bonds, when inflation begins to rise. Short-term stock investing is risky, but over the long run, they generally outperform bonds
• Weak U.S. Dollar – seems like every country is struggling with their own budgets, so don’t overact every time you hear the dollar has fallen. It is a good idea to include international stocks/funds as part of your overall portfolio

Common Sense Actions

From an everyday personal finance perspective, our advice remains the same. Spend less than you make, establish an emergency fund and pay off your debt. When things get tough, if you have little to no debt, you can survive a lot easier than if your monthly income has to support your and your creditors.