Recession Survival Guide

Survive and Thrive

The worsening financial crisis has brought out the best and the worst among women investors. Even if you fall into the latter category, it isn't too late to change.

By Mary Claire Allvine

In a crucible, liquid boils off and only essential chemicals remain behind to be identified. Today's market has boiled off all excess liquidity – literally – and what's left in your financial crucible? Answering this question honestly will determine who will thrive following this global economic crisis and who might never recover. Every investor opened her third-quarter statements to bad news. Whether she owns bonds or stocks, her results are down. Compounding these paper losses, the threat of layoffs, loss of credit access and evaporated home values have raised the heat. Two clear metals have emerged: I'll call one gold; the other is clearly lead.

Gold Investors :In times like these, the valuable investor traits you want to see emerge come out sparkling. This savvy investor seems to have nerves of steel, but in reality she simply has a focus on what she's trying to accomplish. She has diversification, and she has the means to be patient.

What else, exactly, is she doing?

- Like anyone seeking to grow net worth who has cash she doesn't need in the next seven years, she's buying on horrible market days. She does her research, learns to use limit orders, sets them and goes back to work. She also sticks with her pre-existing dollar-cost-averaging plan, perhaps even accelerating it. She diversified equity mutual funds from low-cost, tax-efficient companies. She doesn't act rashly to buy or to sell; instead she takes measured steps with an eye on the long run.
- This same woman confirms her liquidity sources, retains lines of credit priced advantageously off the low prime rate, and reduces unnecessary spending to ensure that reserves last as long as possible. She's not ignorant of world news, but she's not immobilized by it either.
- She's also cutting her taxes now and in the future. While she's hanging onto appropriate stock investments – indeed, she's adding to them – she's also swapping funds or stocks with losses, replacing them with equivalent funds without leaving the market for even a day. In this action, she's taking losses she can use against taxes this year – and banking losses she can use against likely higher capital gains in the future.
- Finally, she's confirming the financial organizations with whom she invests. Likely, she long ago consolidated into a surviving, global mutual fund company. She is not buying one-off CDs at various banks; she's not searching for the next hot idea; and she's not listening to a broker on commission.

Fool's Gold: Sadly, many other women are not finding value today. Indeed, they're undermining their own objectives and missing opportunities. Over the last three months, I have witnessed:

A woman who wanted to sell all her stocks. Emotionally exhausted, she can't imagine how long her investments will take to recover, and she's worried about paying bills next month. Another had too much of her money in her company's stock, which has tanked, while her job security has evaporated. "I knew better!" she admits. "But I was investing in a company I believed in."

A woman who admitted too late that she was living from commission check to commission check in an industry where buyers are all sidelined. She also found that her home equity lender could cut off the $50,000 line it had previously offered her against her home. All of a sudden that $1,000 purse and $500-a-month leased car make her sick, not exhilarated.
Another woman, with a portfolio of individual stocks, who can't bring herself to sell them, take the losses and invest in an index fund. "I don't know why I can't do it. I just can't," she says.

A woman who has four different 401(k)s, a brokerage account, a bank in her home town, one in her new town, and two different mutual funds at two different fund companies. "I don't even know, really, how much I've lost because I don't know where I started," she says, "and I can't make time to total up where I am."

Change NowEven for those of us who didn't turn out to have the inherent strength and value we had hoped for, there is some common-sense alchemy we can practice. Conversion always starts with these magic words: "I need to change."

Where to start?

1. Start with where you want to be in 10 years. Yes, 10. There's no quick turnaround, but envision the future. Every step toward that financial future needs to be directed purposefully.

2. Admit where you are. Total it up: Make a balance sheet of assets and liabilities. Detail your fixed living expenses. Track where your cash comes from reliably and admit what's variable income. Note that the economy will likely get worse before it gets better. Make an immediate plan to survive: Cut costs, pick up a consulting job, sell your more valuable personal assets.

3. Get help. Truthfully, most successful professionals aren't trained in personal finance. Find an adviser who is not selling you a product or promising you an easy solution. Find one who will teach you and whom you will trust enough to follow her advice.

Mary Claire Allvine, CFP, is co-author of The 7 Most Important Money Decisions You'll Ever Make (Rodale, 2005) and a partner at Brownson, Rehmus & Foxworth Inc., a national fee-only financial plannin