What’s The Market Telling Us?

I was interviewed yesterday by my Los Angeles radio affiliate regarding my views on the economy and the stock market. In the interview, I explained that stocks are a leading indicator for the overall economy.

When you focus on the long-term trend in prices, rising stocks indicate that economic times are good. Conversely, falling stock prices generally tell us that bad times are ahead. For the general economy, I think we should be preparing ourselves for slower growth and a tenuous job market.

I think now is the time to circle the wagons with your personal finances and be more conservative in all things related to your money. I have published the following list before, but since the market recently fell to new lows it’s even more important to keep the following tips in mind for making it through these difficult economic times.

1) Eliminate all consumer debt. Financial independence will not be achieved carrying a big debt load. It’s obvious that you should not be paying interest on credit cards or student loans, so one of the best investments you can make right now is the paying down of debt.

2) Manage your taxes. Higher taxes are coming, and the more you make the more they’ll take. The smart money employs every strategy allowable to beat back the tax man.

3) Fully fund your retirement plans. By maxing out your 401(k), IRA and other plans, you’ll lower your taxable income and increase savings.

4) Manage your risks. Make sure you have adequate insurance in place to protect your assets and your family.

5) Positive cash flow. Most Americans live above their means, so if you find yourself in financial trouble, it’s a good bet that you are outspending your income.

6) Get financially literate. Managing your assets in uncertain times requires energy and expertise. If you are so inclined, get an education in the financial markets. Read books, newsletters and Web sites, and follow the markets carefully. If you’re not inclined to do it yourself, hire a fee-only advisor to manage your money and stay away from firms that charge high commissions.

7) Minimize fees. Mutual funds, annuities and high-cost advisors are ripping off millions of Americans. Know what things should cost and avoid all products with high surrender charges.

8) Get real about real estate. I predict more money will be lost in real estate in the coming years, and just like the tech bubble of the 1990s, there will be more losers than winners.

9) Get real about government promises. Do you expect to receive a Social Security check when you retire? How about Medicare, will it be there for you? I suggest you plan to be self-sufficient, that way you won’t have to rely on the capriciousness of political promises.

10) Start planning for a realistic retirement. Many Americans feel they are entitled to a condo in Florida and four rounds of golf per week. It will take a million dollars to safely generate $50,000 per year in income, so if you want to retire with more income than that, you’ll have to plan accordingly right now.