Weathering the storm

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MPR’s Midmorning today talked with Sandra Block, a personal finance columnist for USA Today today. Much of it we’ve heard before, but many of us are near panic. And today, I detected a lot of “pushback” from the audience, which should tell us something.

Block also said the poll earlier this week that showed most people expect a depression shows that most people don’t know what an economic depression is.

Here’s the Cliff Notes version.

1. I’m tired of hearing “don’t move stocks and mutual funds.” Why should I?

The problem with giving up is you’ve given up the opportunity to recover gains. What matters isn’t what your portfolio is worth now. What matters is what it’s worth when you need the money.

2. We’re near full panic, we should keep the cash in our house. But the bank won’t give me cash now.

There are federal reporting requirements for large withdrawals from banks to discourage the underground economy. Your bank doesn’t have enough cash in its vault for everyone to take their money out. Keeping large amounts of money in your home reminds me of Y2K when people built cabins on mountains.

3. How much “liquid cash” should I have?

It depends on how many kids and how many incomes. Most people barely have enough for two weeks so when we talk about six months, people won’t even try. Just start with trying to have enough so if your car breaks down you can pay cash.

4. I moved my mutual funds from stocks into cash prior to the worst of the downturn. When should I put it back into the market?

Now.

5. I have some property overseas. Should I sell it to pay off debt?

It’s always a good idea to pay off debt in this economy. Be careful about tax liabilities. If you’re paying credit cards with 20% interest, that’s a 20-percent rate of return. If you’ve been paying on time and haven’t been late, you have a good deal of power to negotiate lower rates.

6. Why am I still get credit card solicitations if there’s a credit crunch? And can I negotiate with my credit card company?

They’re sending these to everybody but if you actually apply, you may not be able to get what they’re offering. It’s just cheaper to send the solicitations to everyone. They want to give money most to people who don’t need it.

7. I have a spending problem. What should I do?

Write down everything you spend money on. You’ll be more conscious of the “leakage.”

8. I’m 50 and self-employed and lost $35,000 in my retirement account and rebalanced to 80% stocks and 20% bonds, was that a good move.

Yes. You’re self employed so you probably plan to work for a long time and you’re still young. As you get older, gradually rebalance that once the market comes back.

9) Should I cash in the 401K and pay off the house?

No. That’s for your retirement. What good is having a home paid for when you can’t afford groceries? If you want to pay off your house sooner, make an extra payment every now and then.

10) What’s the difference between a recession and depression.

Old saying: A recession is when your neighbor loses his job and a depression is when you lose your job. We’ve only been in a depression one time but I’d say it’s double-digit unemployment, banks closing, and no GDP growth of years, not quarters.

Unemployment is going to go up. We’re in a recession which is why people need to bulk up savings accounts.

Kerri said one of the reasons she had Block on the show is to help people take steps to prepare for a coming layoff. But nobody had any questions about preparing for a layoff. Many of the questions were from people who appear to be in fairly good economic shape and had money socked away. We need to take another stab at this issue and concentrate solely on people facing layoffs. It’s hard to relate to the caller who has $1.8 million still.

Photo: Maragaret Bourke-White

  • Bob Moffitt

    Even though I am closer to retirement than my first day on the job (I’m 50), I have yet to feel a real sense of panic. My wife, on the other hand, is very nervious about our finances and future.

    We have both lived through recessions before. I do feel bad for those who are on the cusp of retirement. Tough situation for them.

  • http://www.trialblz.com Brian Hanf

    My plan is to not look at my retirment statements for the next year or so. Since I work in what I hope is a ression proof job, in fact we are looking at hiring some more staff, I am not really all that concerned.

    Same goes for my wife who is an RN.