Financial Planning During a Recession

This is an interview by OurBlook with financial planner Christine D. Moriarty, president of MoneyPeace, Inc.

Let's assume people have some money left after the carnage and wish to protect it and build back up again, or are starting over entirely. Should they consider any of the following avenues for investment and if so, what should they specifically do?

1. Gold and other precious metals. CM: Great place to always put money as part of a diversification strategy. Right now may not be the best time to buy gold as everyone has jumped on the bandwagon. And you have to consider whether you are buying mutual funds in gold or the actual metal. Having something in your hands is preferable but how are you going to protect it? And how are you going to spend it when the need comes?

2. Bonds. CM: Again always a great investment. Diversity between corporate, treasuries and municipals. The older one gets, the more money that should be in fixed income so you know your income at retirement. Downside ... bonds are not a great inflation hedge. That is why you always need some stock.

3. Treasury notes/money market accounts or funds. CM: Be sure the money market accounts are insured. Cash is for security and that adds security.

4. Real estate. CM: Yes, your home. Buy it and pay it off. As an investment, know that it can lose value and cost money as well as make money. So keep added cash on reserve.

5. Collectibles. CM: Great investment if you like what you are collecting and know what you are picking. Be sure to insure your collectibles.

6. Insurance and annuities. CM: Annuities are appropriate for a small percentage of folks ... typically high net income.  Insurance contracts are the same way.

7. Stocks. CM: Based on your age ... as you get older, less and less of your money should be in stock.

8. Commodities. CM: A small amount to hedge inflation. They are riskier than anything else on the list.

9. Cash beneath one's pillow. CM: Always keep some at home and handy.


Are there any other suggestions you'd like to make about surviving financially during these tough times?

CM: This economic climate has everyone struggling to find the right answer. There is not a right answer. First, folks should focus on the stress and the economy. Then they can focus on themselves. Before they look to investing, they should have significant amounts of cash in their "safety accounts." This is the six months of living expenses to get them through the difficult times. Next, they can use extra cash to pay down their mortgage, if they have one. Owning your own home gives security in rocky financial times. An emotional and financial investment for themselves and their family.

If they do not have a home, they need to focus on paying down consumer debt ... cars and credit cards. Once that is taken care of, then they can think about investments.

On the investment end, they should be diversified. The older they are, the more bonds and treasury notes they need to have for the security. Gold and precious metals are always a good investment. But buying them now when there is a high demand is really like what got us into this mess ... buying real estate and investments when they were high. Better to sit out and wait. Having some investments is good. Having cash for when the next need or solid investment opportunity comes along is even better.


Are you optimistic or pessimistic about the economic direction of this country ... both in what the federal government is doing and what's happening in the private sector?

CM: For people, optimistic ... this is a time of value shift. Otherwise pessimistic because the severe changes are going to impact our institutions.


Christine D. Moriarty is a certified financial planner and has an MBA in entrepreneurship from Babson College.