In Managing Finance, Keep Courage Under Fire...

The USD150billion fiscal stimulus plan proposed by President Bush of United States to boost the economy of the ailing nation appeared to be not well received by public due the perception of poor timing and simply not good enough to lift the looming recession threat. This is followed by global market's massive knee-jerk reaction to this negative perception that US is indeed headed for a recession...European markets had a bad day last night but what is to follow is an even bigger storm brewing in Asia, with major Asian markets such as China and Hong Kong falling by a massive average of 8%! Basically, panic selling is the order of the day! Expect worst to come tonight as Wall Street resumes trading after Monday's Martin Luther King Day holiday!

In the midst of the gloom and doom, I came across this interesting article written by Robert Daniel, who is based in Tel Aviv and is Dow Jones MarketWatch's Middle East bureau chief, which I would like to share with you. He offers a view for small American investors on what they could do given the current stormy circumstances.

Robert's suggestion includes resisting the urge to sell into the tidal wave, continue funding 401(k) accounts, and paying down credit-card debt. His reason being simply, "volatility is part of the stock market investment arena, for one to invest in stocks, this kind of volatility comes with the territory". His advice is therefore, don't follow the market into the tank!

Unfortunately, the way the human psychology works is that people want to buy when everyone else is buying, and vice-versa! Better known as the herd's mentality!

"Embrace the volatility, which means continue these contributions. This volatility means you're getting better value with this contribution than you did the previous payday. You're buying more shares with the same amount of money. Compounded over 20 or 30 years, that could mean a significant difference in return. Now is not the time to head for the hills.", quoted Robert.

Robert's other suggestions include:

1. if investors have additional cash available, and they qualify based on income level, they should also take out a Roth IRA account.
2. If one has got a tax refund for 2007 coming, hurry and file and you'll get it quick. Take that extra cash and put it into a Roth IRA. One does not get a tax deduction when the money goes into the account, but at retirement, the money is 100% is tax free. For those under 50, one can put a maximum of $4,000 into a Roth IRA this year; if one is over 50, the maximum is $5,000
3. Reallocate one's portfolio by switching from growth stocks to value stocks, given that performance of growth stocks have outpaced value stocks for the past couple of years;
4. Pay off credit card debts due to its high interest rates. Moreover, credit card interest is non-deductible.
   
5. For those employed, take out a home-equity line of credit. This funding is to be drawn on only in emergencies. Bear in mind this credit is only available when a person is employed, so make sure you keep your job!
6. Last but not least, continue to have faith! Markets have their cycles and we're going through one. This is not the beginning of the end!

Do give me your views on the above article and suggestions.

For the full article, click this link.