Passing Your Own Personal Bailout Plan

September 30, 2008

By Ron DeLegge, Editor

SAN DIEGO (ETFguide.com) – Regardless of whether or not Washington lawmakers pass a bailout package to rescue America’s financial system, I still think it’s a good idea to enact your own personal bailout plan.

Here’s where I would begin:

Debt is a Four Letter Word

Want to make a guaranteed 16 percent on your money? Pay off your bloated credit card balances. If you’re in a deep hole, don’t dig deeper. If you’ve become accustomed to living off of home equity or credit card debt, reform thyself today. Immediately reduce you reliance upon credit.

Do You Have the Right Mix?

If your IRA, 401(k) plan, or investment account has dropped harder and faster than you expected, it’s probably because you have the wrong investment mix or asset allocation. Make sure your exposure to stocks, bonds, real estate, commodities, collectibles, cash and treasury inflation protected securities (TIPS) harmonizes with your investment plan. Your allocation should always match your financial goals and risk tolerance.

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Before You Go to 100% Cash...

Know that liquidating all of your investments into cash equivalents comes at a lofty price.  Not only are money market yields an unattractive 2.5%, but the transaction cost, taxes and potential penalties associated with panic selling further erode the value of your money. Even worse, you may be blowing up a good investment plan and putting your financial future at greater risk than you realize.

Hedging instead of Selling

If you still can’t liberate yourself from the idea of converting large portions of your investments into cash, consider hedging your portfolio. For example, if you want to limit the pain of further declines in the stock market, simply hedge yourself with exchange-traded funds (ETFs) that are designed to increase in value when stocks fall. The ProShares Short S&P 500 (AMEX: SH), ProShares Short QQQ (AMEX: PSQ), and the ProShares Short Dow 30 (AMEX: DOG) are funds that move in the opposite direction of major stock benchmarks.

Get Professional Help

If you’re still confused, unsure of yourself or if your investment portfolio is sick and getting worse by the day I say get professional help. Ask people you trust for a referral to an investment advisor. Make sure they have experience and a clean disciplinary history. (Check your advisor’s history by visiting FINRA.org) If you’re still not sure how to locate a qualified investment advisor, use free referral services. (See IndexShow.com or NAPFA.org)