“Personal Finance: Lessons from the downturn - Philadelphia Daily News” plus 1 more

Personal Finance: Lessons from the downturn - Philadelphia Daily News

Posted: 22 Jan 2011 11:56 PM PST

Posted on Sun, Jan. 23, 2011

People are feeling better about their 401(k), IRA, and college-fund balances after a 95 percent upswing in the stock market healed some of the hurt from 2008 and early 2009.

So now, perhaps, you dare look back at a few lessons that can save you from some of the pain of the last few years.

No one can tell you what will happen. Economists knew that there were problems in the economy before the market started plunging in 2007, evaporating 57 percent of the money invested at the time. But few realized that the financial system would crumble and cause the worst stock market plunge since the Great Depression. Just as the depth of the plunge was not anticipated early in the decline, the upturn that started in March 2009 sneaked up on investors, too. Even the pros, fund managers who pick stocks for a living, thought it was a head fake early on. Some of the most talented fund managers confessed months later at a Morningstar Inc. conference that they wished they had bought more during the dreary days. They discovered in retrospect they had missed an opportunity to buy stocks at the lowest prices of their lifetime. After the market climbed for months, professionals regained their nerve, but many individuals did not. Missing a 95 percent upturn means you do not heal from the damage you endured.

Understanding trends

What goes up must come down, but what goes down does come up. Studies in "behavioral finance" show that people are poor at understanding trends of all kinds, not just when investing. If we see something on an upswing, we figure it will continue, and if we see something on a horrible or scary trend, we figure that is for keeps, too. That gets people in awful trouble with investments. In 2000, people poured money into technology stocks because they had climbed almost 100 percent the previous year; then they plunged 80 percent. In 2005, people figured they could not go wrong buying homes and flipping them. You know the rest of that story.

Bear markets, or serious downturns of 20 percent or more in the stock market, happen on average every three years. Yet, somehow, when people have enjoyed a rising stock market for a long time, they figure that is normal, and the money they have made is theirs to keep. When the market falls, however, fear takes over, and people believe that something is permanently wrong.

Neither the euphoric nor dreary assumption is true. And if you ever imagine the full stock market going to zero, ask yourself: Do you think people will be going to jobs, sitting down to dinner, carrying out the garbage and buying winter gloves when it's cold? If so, it means you assume commerce will go on, and if commerce is going on, business will still exist, and stock prices, in general, will not go to zero.

A tip-off

High prices are your tip-off that trouble might be coming. Professional investors choose investments that are good deals - in other words, cheap. So when they see an investment at a ridiculously high price, like homes in 2005, they stay clear and buy something cheaper. When you buy something cheaper, there is a greater chance it will climb a lot and you will make money. For example, when people started putting money into gold during the financial crisis, people had not been interested in it for two previous decades, and it rose considerably from below $800 an ounce. Yet many ignored gold until it was selling at more than $1,200 an ounce. At that point, a herd mentality took over, and people followed the other guy. But when the herds take over, there is often less chance of making money.

You have heard the solution many a time: Buy low and sell high. A simple approach is to be aware of what professionals say. When everyone from the taxi driver to the delivery guy is talking about an investment, the period for making a lot of money is probably drawing to an end.

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com.

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Personal Finance: Home office clutter has to be tidied up - Sacramento Bee

Posted: 22 Jan 2011 11:56 PM PST

As home offices go, Dianna Lovelace's work space wasn't the messiest. But every time the Rancho Cordova mother and pastor's wife wanted to pay a bill, do some writing or work on a project, the clutter crowded out her ability to concentrate.

Like many of us, the energetic mom, who also runs a women's ministry and teaches motivational workshops, could never find the time to get on top of her home office clutter.

And in her otherwise spotless home, it showed. The desktop was covered with family photos, piles of paper, bills, school notices. The wall-to-wall shelves were crammed with books, binders, old phone books, family mementoes, magazines, even a wedding bouquet. And the floor? It was a holding station for accumulated household stuff: last year's Christmas wreath, a bedroom comforter, the vacuum cleaner, Goodwill donations, a bag of to-be-shredded papers and 15 years' worth of women's conference materials.

"All I want is peace … and to be able to multitask a little easier," exclaimed Lovelace, who said she procrastinated several years before hiring Tonya Piper, a professional organizer.

That's a typical response. "It's overwhelming for many people. Sometimes they just need permission to get rid of their 'stuff,' " said Piper, owner of Control C.H.A.O.S., a former engineer who's been a professional organizer for churches, homes and offices the last five years.

A home office, whether it's a corner table or an entire room, is the place where every document of your life, from bills to health care to school, needs a place to roost.

Getting it organized can free up usable space, and result in less time and money spent looking for lost items or buying replacements.

The mantra of every personal organizer: Everything in your house needs its own home, including every piece of paper you keep. And even then, we keep too much.

"People like to pile, instead of file," said Ann Nagel, the Elk Grove owner of Organize With Ann, who's seen clients' homes with paper piled on window sills, dining room tables, bathroom floors and just about any flat surface. The most typical – but worst – place, she says, is the kitchen counter, where papers easily get wet or spilled on.

"About 95 percent of what we file we never look at again but it's taking up valuable real estate in our home office," says Nagel, who turned to professional organizing after 30 years as a legal and corporate secretary.

When tackling a home office organization, there are two necessities: a good filing cabinet and a commitment to purge paper. And an understanding that it's often ugliest at the start.

To begin, spread your piles on the bed or floor and sort by category: taxes, insurance, bills, owners' manuals, etc. Put a sticky note on each pile as you go.

Once they're sorted, create sub-categories. For instance, under "Insurance", you might have separate files: "Insurance-Health", "Insurance-Life," "Insurance-Home."

Ultimately, those piles should go into a permanent home inside labeled folders in a filing cabinet.

"It's not rocket science. Everyone has the same stuff, but with their own special needs," said Nagel.

Create a filing system that works for you. Some need a file for résumés, airline rewards, gym memberships, Social Security. Some like organizing files alphabetically, by color (green for finances, blue for medical, etc.) or category.

Lovelace had already color-coded many of her women's workshop files, but they occupied valuable space inside a desk drawer. Because they aren't used daily or even monthly, Piper moved them to a nearby bookshelf. She turned brown accordion file folders on their sides, facing out, so Lovelace's rainbow-hued files are easily accessible.

Another home organizing tip: Have a single place to store incoming papers. It can be a letter tray, a file folder, a basket or even a box. "If it's all in one spot, you stand a much better chance of dealing with it when you're ready to take action," says Nagel.

She always gives clients two brightly colored file folders: a red "Take Action" (phone calls to make, letters to write, insurance companies to contact) and a money-green "Bills to Pay" folder.

They're intended to sit prominently on a desktop as visual reminders.

"So many people don't pay bills on time and get late fees," said Nagel, "because they lose their bills or they're hidden in a pile somewhere."

Another common clutter contributor is sticky notes that often proliferate on desktops or computer monitors.

Instead, keep a small binder or spiral notebook on your desk to consolidate all your to-do lists, phone calls, follow-up reminders and sticky notes, says Holly Graff, owner of Clutter Control Angels in Sacramento.

Sometimes, there are unexpected rewards to home organizing. Lovelace, for instance, was about to toss a tattered Home Depot bag filled with old light switch covers but decided to sort through the contents. At the bottom was a plain white envelope. Inside: $100 cash, left over from a home remodeling project. Piper says other clients have found forgotten gift cards or checks.

Lovelace's office transformation took about 12 hours, not counting "homework" assignments to weed out unneeded papers sitting in binders, boxes and piles. She enlisted her son's help to shred pounds of unwanted paper. Her printer and scanner, once across the room, are now within reach. The files she uses most often are fingertips away. A wire basket for bills sits on her desktop, along with a few favorite family photos. Everything came off the floor and went into designated areas. The result: a place for every object, including the wedding bouquet.

And because so much was discarded, donated or relocated, Lovelace now has six empty bookshelves and space for her sewing and scrapbooking projects – as well as freedom to write the motivational women's book she's been planning.

"With all this clutter, I couldn't ever focus on it. Doing this project has shot up my self-esteem," says the exuberant Lovelace, who calls the organizing experience energizing. "One of my slogans is 'Do it scared, but just do it.' That's just what I did here."

Have a personal finance question? Call The Bee's Claudia Buck at (916) 321-1968.

Personal Finance

Sunday, January 23, 2011