Top Team Realtor April Hsiung

Recent data suggests that the economy may be in or near a recession. How will that affect your savings? Are there steps you can take to help keep your portfolio on track? Here is information you can use. T. Rowe Price Chief Economist Alan Levenson recently lowered his economic forecast for 2008. What is a recession, exactly? The press often defines a recession as two consecutive quarters of negative growth, but that�s a bit mistaken. The National Bureau of Economic Research (NBER), which often determines when recessions begin and end, defines a recession as a �significant decline in economic activity� that lasts for more than a few months. In other words, a recession is a slowdown that is felt far and wide across the economy. If we are in a recession, it will be the 11th since the end of World War II. According to the NBER, the average postwar recession has lasted for about 10 months. The average period of economic growth has lasted nearly five years. How will it affect my investments? Generally, recessions cause company profits to fall. When profits decline, stock prices often fall�but that doesn�t necessarily mean you should sell stock mutual funds or company stock. Here�s why: � Stock prices usually reflect what investors expect will happen in the future. In fact, stock prices often begin to fall before a recession begins and recover before a recession ends. The Dow Jones Industrial Average peaked last July, while the Standard & Poor�s 500 and the Nasdaq both peaked during October of 2007. They began to decline when investors anticipated the economy might slow down. When investors anticipate the economy will recover, markets are likely to gain. � If you have allocated assets by spreading your savings among stocks, bonds and cash investments, and diversified your portfolios so that you hold different types of investments within each asset class (for example, owning small and large company stocks), your investments may not reflect the market declines you�ve been hearing about. That�s because diversification helps reduce overall portfolio volatility; when one asset class or subclass performs poorly, another may outperform. Of course, diversification does not assure a profit or protect against loss in a down market. Should I change my investment strategy? If you�re tempted to duck and cover�moving a substantial portion of your assets into cash or other lowrisk investments, think twice. Market timing, or moving in and out of stocks in an attempt to exploit market swings, is rarely an effective investment strategy. And short-term, panic-inspired selling can have long-term negative effects on portfolio performance. If stock markets continue to be driven by investors� expectations, share prices will begin to increase before economic conditions actually improve. If you move out of a stock when its share price has fallen, then you make the loss permanent. If you continue to hold the stock, its share price may increase as markets recover. When will the economy recover? No one knows for certain when the economy will recover. During the past few years, as our economy was expanding, many companies were careful about hiring too many new workers and over-investing in new equipment. As a result, they may not need to cut back as much as they have during previous recessions. In addition, our government is taking steps to stimulate the economy. The Federal Reserve has cut interest rates, which makes it easier for individuals and businesses to borrow. The Fed also is supporting banks that have been negatively affected by the credit crunch that resulted from the subprime mortgage crisis. And Congress passed a $170 billion tax rebate and reduction package that was designed to put more money in consumers� pockets. These measures may raise confidence and boost personal and business spending. Regardless, Mr. Levenson warns that there is no simple cure for the ills in the housing sector and elsewhere. The government needs to be wary of rising inflation, the effects of which are already being felt by many consumers. Savvy investors stay calm and focused Rather than panic in response to all of the market drama, stay calm, and focus on what you can control: � Make sure you have adequate cash on hand for emergencies. T. Rowe Price financial planners suggest a cash cushion equal to three to six months of your expenses. � Stay informed, but don�t panic. It�s easy to be influenced by the news, which is often full of doom and gloom when markets decline (and euphoric when markets rally). Remember: If you had a good investment strategy six months ago, chances are it�s still a good investment strategy. Do your best to stick with it. � Market dips give you opportunities to invest at attractive prices. Each time you contribute to the plan, you are buying shares at a lower price and reducing your average cost per share. � If you are retired, you may want to reduce the amount of distributions from your accounts, if possible. Consider postponing or trimming some discretionary spending until market and economic conditions improve.