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Jim Lentini: Positioning yourself for market recovery

Posted: April 14, 2009 12:48 a.m.
Updated: April 14, 2009 4:55 a.m.
 
No one knows when the market will reach the bottom, or whether it already has. A few good indicators of the market moving positively are that the S&P 500 gained 8.8 percent (total return) in March 2009 - the best monthly performance since October 2002 - and the fact that total capitalization of the U.S. stock market increased by $700 billion during the month of March to $9.4 trillion.

On the downside, in spite of March's strong performance, the S&P 500 still lost 11 percent (total return) during the first quarter of 2009 and the nation's unemployment rate in March 2009 reached 8.5 percent, its highest level in 25 years.

Here are a few tips from investment professionals that are designed to help you cope with a prolonged market downturn.

Based on your age, they advise:

20s or 30s:
n Build up to a year's expenses in a money-market fund.
n Set up an automatic investment program monthly from your paycheck or bank account.
n Make the maximum contribution, if possible, to your 401(k) or 403(b) retirement plan.

30s and 40s
While saving for retirement and children's college:
n Work with a financial adviser to monitor retirement investments and to take advantage of options offered by 529 college savings plans.
n Don't panic and liquidate investments in a market downturn.
n Continue investing for the long term in a diversified mix of equity and fixed-income investments.

50s
While providing support to children and aging parents:

n Minimize expenses wherever possible.
n Keep investing regularly in a retirement plan.
n As college years approach, be sure the 529 plans are positioned for the shorter time to payout.

60s
While transitioning to retirement:
n If possible, work a few years past the standard retirement age of 65.
n Maintain two years worth of expenses in a money-market fund, but keep a portion of the portfolio in stock mutual funds.
n Consider part-time employment. It may help postpone withdrawing from retirement savings or minimize the amounts needed.

70s
While drawing income in retirement:

n Tap into taxable savings first. Draw from tax-deferred retirement accounts and tax-free last.
n Although you can't control the stock market, you can manage your income strategy. Retirees who keep a portion of their portfolios in stock funds allow an opportunity to participate in an eventual recovery.
n Reduce spending during market declines. It will lessen the impact to the portfolio.

In dealing with these ups and downs of our economy and our investments, meeting regularly with a financial adviser is imperative. So is living within your means.

Jim Lentini is president of Lentini Insurance & Investments Inc. He can be reached at (661) 254-7633.

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