The Current Market

If the current financial news has your head spinning, you?re not alone. Every day seems to bring new statistics, for better or worse. One pundit says get out of the market, another says stay the course. For some people, all the ups and downs are simply paralyzing.

While we?re all looking for the silver lining, there?s no one word of advice that will work for everyone. Where you are in life ? your age, your goals, how much you?ve saved ? is a key factor in how you respond to today?s economic turmoil.

And although it may seem easiest to throw away all the rules and simply say, ?today is different,? I still believe there are some basic tenets of financial discipline that can work in your favor. Whether you?re in your 20s, 40s or facing retirement, here are some guidelines for keeping your head above water and staying on track.

Ages 20 ? 35:
A buying opportunity

Many young people have felt priced out of the market. Well, things have changed. As stock prices drop, this may be a great opportunity to get started. That said, you still have to be cautious. Although you have a long time ahead of you to invest ? and that?s crucial to riding out market ups and downs ? before you ?jump in,? you need to make sure you have the rest of your financial house in order. That means:

? Having enough money in a very liquid savings account or money-market fund to cover three to six months? living expenses.

? Paying off high-interest consumer debt such as credit-card balances and car loans ? and staying out of debt.

? Contributing to your 401(k) or other employer-sponsored plans at least up to the company match.

If you can check off all of the above, you can then consider how to save and invest more in hopes of taking advantage of market lows. Yes, stocks are volatile over the short term (so you shouldn?t be putting the money you might need in the next three to five years in the stock market), but long term they remain the key to portfolio growth and have dramatically outperformed bonds and cash over time. Having a long-term horizon is a No. 1 consideration, but you also have to consider how much risk you?re willing to take. Can you stomach the roller-coaster ride? If not, you need to carefully consider how much you want to invest in stocks.

But whether or not you decide to invest in the stock market now, don?t stop saving. If you save just 10 percent of your annual salary now ? and keep saving that amount consistently ? you may never have to increase the percentage to have a secure retirement. When it comes to long-term growth, your youth creates your real opportunity, no matter what the market is doing.

Ages 35 ? 45:
Keep your priorities in sight.

At this point in your life, you probably have a lot of conflicting financial responsibilities ? home, kids? education, retirement planning. The economic downturn can seem to fly in the face of your opportunities as you approach your peak earning years. However, you still have a longtime horizon, so I suggest you stay focused on your goals.

If you?re still in the market, don?t respond emotionally now. Let your asset allocation be your guide. As long as you?re comfortable with the overall risk level of your portfolio, you?re probably OK long term. Stick to your investment plan and consider that you might be benefiting from dollar-cost averaging, which means you?re buying more shares when prices are low and fewer when prices are high.

Short term, keep money you?ll need in three to five years in more conservative, liquid investments. And keep saving for retirement. It?s still far enough in the future for your nest egg to weather market highs and lows.

Ages 45 to retirement:
Your peak earning years.

Hang on and go for growth. From ages 45 to retirement, chances are you?ll be in your peak earning years. If you?re not already on track, now?s the time to focus on saving more and growing your savings. Cash investments may feel safe short term, but long term they?re far from it. Right now, returns on money markets and Treasuries are negative after inflation. So putting your retirement savings in cash investments doesn?t make long-term sense. Over time, stocks have been the best defense against taxes and inflation. Even through events like the Great Depression, major wars and the oil embargo, statistics show that, though vulnerable during the short term, stocks have been resilient long term. Is today any different?

Just make sure you keep an emergency fund to cover three to six months of vital expenses in money-market accounts or interest-bearing FDIC-insured accounts ? and be mindful of not investing the money you will need in the next three to five years in the stock market. That way you shouldn?t be forced to sell in a downturn.

Facing retirement:
Protect yourself.

As you get into retirement, you?ll want to invest more conservatively no matter what the market is doing. A gradual shift to fixed-income investments like bonds and CDs can make sense at this time of life. Market volatility is never comfortable, but now particularly, you?ll want to reassess your feelings about risk. An ideal asset allocation would maintain the potential for a certain amount of growth, while protecting your assets and providing income.

Then take a good look at cash-flow needs and your spending patterns. Try to keep a full year?s (or more) worth of spending in cash so you don?t need to pull money out of your equity portfolio during a bear market (with another two to four years? of reserve in fixed income). It?s never easy, but in times like these, controlling your spending can be one of your best strategies.

Keeping your eyes on your goal can be difficult at any age and in the best of times. But now, when times are tough, it may be more important than ever. While you can?t control the markets, you can control how you respond. And to me, the best response is to keep saving, manage your spending and stay focused on the long term.