There are very few people who have remained unscathed during the current financial 2009 recession. Many employees and their families are frightened to think about their future. Credit has tightened, housing prices have gone up, and investment portfolios are in tatters. Things have gone worse, but this is not the time to panic. Financial analysts unanimously agree that your greatest assets in troubled times is the ability to remain calm.

You have to keep your perspective during their financial recession and you have to think with a clear head. You will be making worse short term decisions if you are more dialed into the daily financial events. All your decisions are filtered by a cognitive bias called the “recency effect” which causes us to place greater emphasis and importance on our most recent experiences and project them into the future and in most cases it happens to go wrong in some ways or the other.

The way to beat this economic bias is to maintain a big picture, make a long term view of both the financial markets and your own personal financial goals. Things may looks rotten now, but history says that situation will reverse. The average recession lasts about one year and the average bear market lasts for 18 months approx., but this cannot be taken as guaranteed.

You have to plan for success. Since you are facing a tremendous financial beating, its time to do something. If you are approaching retirement, consult a financial advisor. Here are a few tips that will help to maintain both your sanity and your net worth.

• Keep your long term and short term goals entirely separate. Experts say that you should not invest that money in the stock market that you might need within the first five years.
• Accurate access your risk tolerance. You may have overestimated your stomach for wild swings prior to this current crisis. You now need to adjust accordingly for the future.
• Diversify your investments. This will help you to reduce risk and volatility.
• Don’t obsess over daily market fluctuations. Avoid checking your portfolio everyday. This may lead to impulsive decisions and anxiety.
• Don’t make a guesswork trying to time the market by continuing to make investments at regular intervals.
• Learn how to live on cash during emergencies, just in case if something goes wrong. You should have adequate arrangements that should last for at least 6 – 8 months. This will be quite a tough assignment for many people but you will sleep better at night and make better financial decisions knowing that you have that cash cushion.
• Make small and incremental changes when rearranging finances. When you buy and sell investments, do it in small blocks, rather than doing it all at once.
• This may be a very good opportunity to trim excess fat from your budget. Reining and spending will reduce most of your worries and help you regain a sense of control.

This entry was posted on Thursday, April 9th, 2009 at 4:43 pm and is filed under 2009 Recession, Financial recession. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.