Stock prices and home values are down. Gas, food and health care costs are up. The economy is slowing and earnings are slumping.
Welcome to what feels like and what many economists predict is a recession.
What can you do about it?
You can worry and wring your hands. Or, you can focus on doing a few things that will buy yourself peace of mind.
Here are tips from financial planners for dealing with your investments and household finances.
Know your risk tolerance — you’ll sleep better. If the stock market’s volatility is keeping you up at night, your investment plan doesn’t jibe with your risk tolerance and you need to make adjustments, said Todd Calamita, certified financial planner at RBC Wealth Management in Charlotte.
That doesn’t mean you flat-out dump stock. If you sell off and buy back in after the market recovers, you’re doing exactly what you shouldn’t — buying high and selling low.
“If you sold at the low of 2002, you would have missed out on five years of unbelievable returns,” Calamita said.
If you want to ease up on investments, Calamita suggests gradually changing your allocation — out of stocks and into bonds or cash.
Set targets. For instance, when the Dow Jones Industrial Average recovers a certain amount of lost ground, shift 5 percent of your portfolio out of stocks.
When it hits another mark, take out another 5 percent. The idea is to gradually reduce your stock holdings to a level that makes you rest easier, while avoiding selling low.
Watch mutual fund fees. The more you pay for investments, the bigger the returns you need from the market.
Pay attention to mutual fund loads and expense ratios and consider lower-cost options, such as exchange traded funds (ETFs) and index mutual funds, “especially when we are in a market that is going to be sideways for a few years,” said Drew Waterbury, certified financial planner in Charlotte.
As for mutual funds, the average expense ratio is about 1.25 percent, Waterbury said. But index funds’ costs are much lower. The Vanguard 500 Index Fund’s expense ratio is 0.15 percent. A good place to check fund performance and expenses: Morningstar.com.
Buy more. If you don’t need the cash now, buy more stock. “A downturn is wonderful news for people who are buying the market,” said Cynthia Anderson, a certified financial planner in Charlotte. “It is your chance to buy things ‘on sale.’”
Jump-start your emergency fund. If you don’t have a home equity line of credit, get one, said Tom Pemberton, a certified financial planner in Charlotte. Consider it a cushion in case you get sick or lose your job. Just don’t tap it for vacation or shopping sprees or home renovations that can wait.
“If you can be disciplined enough not to use it, it’s a prudent addition to building up your emergency fund,” Pemberton said. “There’s no substitute for an emergency fund or for putting more in it now than you would have a year ago, because the economy ... certainly is slowing.”
Now, this next bit of advice is going to sound like a contradiction, but hold on.
If you have a home equity line already and think you might need the funds in the next year, you might consider pulling the money out now and putting it in the bank until you need it, Pemberton said. That’s because up until the past year or so, banks were being more generous with credit lines, lending 100 percent of the equity in homes.
Some homeowners — particularly in areas of declining home values — are getting letters from banks saying their credit cap has been lowered. But do this only if you think you will need the money soon and have no other funds.
You will pay more interest on a home equity line of credit — albeit tax deductible interest — than you will earn at the bank.
Save your tax rebate. The checks started hitting mailboxes last week.
“Every retailer is coming out with ads ... to entice you to spend the money,” Pemberton said. “Maybe from a macro (economic) perspective that is the thing to do, but from an individual perspective now is the time I would be augmenting my emergency fund or paying off credit card debt.”
Keep a credit card diary. “The one (thing) I have been telling people lately, as budgets are getting tighter: keep a check register of all credit card purchases,” Anderson said. “It is very eye opening.”
Anderson said one client told her that every time she went shopping at the mall she spent $250. She kept a record and saw it was really $1,000.
“You write it down, you start keeping better track of it ... you kind of second-guess that everything you are buying you need,” Anderson said.
OTHER WAYS TO TRIM COSTS
Stock up on beef. Don’t go to the grocery store without a list and don’t go more than once a week at most.
You’ll waste money on impulse purchases and gas. One value at stores right now: beef, Pemberton said. Corn is so expensive because of global demand for ethanol that ranchers can’t afford to feed their cattle, so they are slaughtering them and flooding the market with beef.
Pemberton recently spotted angus beef steaks at the grocery for $5.99, the lowest price he’d seen in nine months. “I bought as much as I could fit in my freezer, because I like porterhouse steaks.”
Once the surplus is depleted — in a month or two, Pemberton predicts — prices will rise. Experts say you can keep beef in your freezer for at least a year, so long as it is wrapped well and doesn’t partially thaw and refreeze.
Save on insurance. Consider raising the deductibles on your insurance policies, which can significantly reduce your premiums, suggested Linda Schoenfeld, a certified financial planner in Charlotte.
Drive less. “Most people underestimate how much it really costs to operate an automobile,” Schoenfeld said.
AAA’s cost per mile this year in South Carolina is expected to reach 58 cents for each mile driven, up 11 cents from last year.
With this year’s higher prices at the pump, Schoenfeld said, “think car pools, public transportation, consolidating errands, and walking and biking for close-by errands.”
Baldwin is a writer for The Charlotte Observer, a McClatchy newspaper