It’s easy to give yourself a panic attack over the current economic catastrophe. The stock market is pinballing, the housing market is clinging for dear life to a pecuniary crag, and jobs are being slashed like victims in a 1980s B movie. To make matters worse, financial talking heads are forever going on TV to flap their yaps about what you should do to deal with this mess. But how can anyone (without a top-tier MBA) make sense of their advice, for all the technical jargon? We decided to round up an expert of our own — Dave Gallacher, Director of Global Portfolio Services at Citizens Bank — to help you make savvy decisions about what to do with your cold, hard cash. What’s left of it, anyway.
STUFF: During this period of economic crisis, what’s the wisest investment that a young professional can make?
GALLACHER: Diversification is the golden rule of investing. Ensure you have a broad range of assets, including cash, stock, bonds, property, and commodities. However, there’s no point in saving if you are overloaded with credit card debts and student loans. The interest you pay on these is likely to be well above anything you can earn in relatively safe investments such as cash and bonds. If you can, pay down your debts to manageable levels. The interest you save can then be used for future investments, such as a home, pension, or nest egg.
IN OTHER WORDS: Variety is the spice of life, so, as Gallacher says, the key to wisely investing your cash is to spice it up — once you’re as close to debt-free as you can swing it. Don’t let those credit card bills pile up. Even one missed payment can screw you harder than Jenna Jameson, so stop self-medicating with your charge cards and quit the therapeutic impulse shopping sprees. You can defer your student loans — usually, all it takes is a phone call and a pitiful waver in your voice — since they’re generally the best debt to have. But pay that shit off, friend. Can’t have money if you owe money.
STUFF: Is this a good or bad time for a relatively financially stable person to be buying a house? A car? Stocks?
GALLACHER: With falling prices everywhere, this is a great time to buy if you can afford it. You should think of a house and stocks as an investment, but a car as a depreciating asset. While it may be nice to have, it’s not going to help you retire early. When investing, the first thing to consider is your time horizon. If you can put your money away for the long term, at least five years, then equities and property have proven to be great investments. However, stick to cash or similar low-risk assets if you’ll need the money in one or two years.
IN OTHER WORDS: Like a fine bottle of wine, houses and stocks will (usually) increase in value the longer you own them; conversely, like a skunky 40 of malt liquor, cars decrease in value as they get older. Let’s not forget, though, about that pesky little subprime mortgage crisis — people being suckered into taking on mortgages that they couldn’t possibly pay off, tempted by “floating” mortgage rates that, like that dudes you pick up at 1 a.m. in Faneuil Hall, initially seem downright sensual, then get uglier the longer they’re near your slowly sobering up self. Buy a house only if you can absolutely afford to hang onto it for a while, and only if you can absolutely afford the mortgage payments.
STUFF: What options should one look for when opening a savings account? An IRA?
GALLACHER: Do your homework. Never invest in anything you don’t understand. Weigh up the risk and return and ensure that it’s appropriate for you. Assess risk in terms of your own personal preferences. For example, are you risk averse or a risk taker? Also consider your ability to take that risk — how much can you potentially afford to lose? Every investment has its risk; there is no free lunch. If it looks too good to be true, then it probably is.
IN OTHER WORDS: Don’t buy shit just because your friends bought shit. Ask a million questions, and read everything you can possibly get your hands on. What happens if your investment doesn’t work out? Will it mean months or even years of eating Ramen and your own sorrows? Don’t take financial risks that you can’t recoup quickly or that you can’t deal with in case of disaster.
STUFF: What’s the best way for people who are in the beginning stages of their career to plan for their future?
GALLACHER: The key is that it’s never too early to begin planning for retirement. I know it can be difficult to put money aside for an event that won’t occur for another 30–40 years, but ensuring you have enough to live on when you retire is crucial. At the beginning of your career, you can afford to take more risk to help grow your investments. However, this should be gradually scaled back as you get older, so by the time you retire, your pension fund is invested in relatively safe investments and cannot be savaged by an unforeseen period of market volatility.
IN OTHER WORDS: It’s hard to imagine, but someday, you’ll be too old to work. Or maybe you’ll be too old to want to work. Hell, who really, truly wants to work? The point is, you won’t get by on your good looks when you’re 65, honey, no matter how glamorous The Golden Girls made the senior-citizen lifestyle seem. Talk to your HR department about setting up a 401k (if you haven’t already), or browse online for solid IRA options. That pair of shoes you’d give your left fun bag for? Put them down, and put the cash away for a rainy day in the distant future. By the time you get around to spend it, that same amount will be worth 100 pairs of shoes. Sweet, sassy, orthopedic shoes.
STUFF: What other sort of “finance 101” advice would you give to young professionals?
GALLACHER: Diversify, don’t overextend, and try to stay disciplined. It’s very easy to get sucked into assets that are rising rapidly in the good times, only to lose your shirt when the going gets tough. Ensure you have a plan and stick to it.
IN OTHER WORDS: You heard the man; have a plan. Better yet, make a plan with a financial advisor. Don’t spend money you don’t have, and don’t live a champagne lifestyle on a PBR income, unless you truly can afford that super-duper discounted TV or fantabulous fur coat on the sale rack. Yes, it sucks to have to be a little thrifty, but stop sniveling about it and pull it together. Could be worse. It could be the 1930s. And then we’d have no trashy reality TV to keep us distracted while this financial crisis, too, doth pass.
