With this unprecedented stimulus at work, investors should be asking themselves how to position their investments to exploit this reflationary environment and prepare for a recovery. Here are some options to consider:
Increase Liquidity
Make sure you are prepared for your own, personal worst-case scenario. Build your cash savings so you don’t have to sell your stocks and bonds when they are at their lowest, perhaps on the verge of recovery.
Pay Down Debt
Decreasing household debt is typically a good strategy in any environment. Typically, it’s a good idea to pay down loans with the highest interest rate, but it can also be advantageous for your credit score and your peace of mind to first pay off loans with smaller balances.
Rebalance Your Portfolio
With the significant declines in 401(k)s and IRAs, an aggressive or moderately aggressive investor who started out with a 60/40 mix of stocks and bonds, might now have a much more conservative mix of closer to 50/50. It could be prudent for those investors to consider rebalancing their qualified portfolios back to a more aggressive 60/40 stocks and bonds mix to be better positioned for a potential recovery.
Participate in the Recovery
There are signs that the economy is improving, but economists are split on the timing and voracity of the recovery. No investment expert can tell you for certain when the markets have hit their bottom. But even if stocks go lower from here, history has shown that longer-term investors can benefit from buying stocks when pessimism is at its worst. This could be a good time to increase your bi-weekly contributions to your 401(k) or your IRA if your budget can handle it. It could also be an opportunity for those seeking longer-term investments outside of a retirement account. Consider speaking to an advisor about which investments might be appropriate for you.
This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation.
This column was prepared by Ameriprise Financial. Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
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