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By Leon Stafford and Tony Pugh
Atlanta Journal-Constitution
Wednesday, January 23, 2008
Q. What should you do to protect your 401(k) and other investments, given the market turmoil and economic slowdown?
A. The first line of defense is to make sure your assets are as fully diversified as possible, Atlanta area analysts said. A good allocation would include cash, government bonds, international equities and large- and small-cap stocks, said Emily Sanders, president and CEO of Sanders Financial Management in Norcross. Also, don't panic. Once markets recover, they do so quickly and by meaningful amounts, said Adrian Cronje, Atlanta-based director of asset allocation for Wilmington Trust Investment Management. The important thing is to understand the level of risk you're willing to take, said Bruce Lombardi, senior investor at JPMorgan Private Client Services. "For the long-term investor, the focus should be on what your objective is and make sure you are taking the right levels of risk," Lombardi said. For others, the ideal would be more cash, less risk, he said.
Q. Will my credit cards and other interest rates fall after Tuesday's action by the Fed?
A. Yes. Cutting the target for the federal funds rate to 3.5 percent means that the prime rate will fall by an equal amount, to 6.5 percent. Since most Americans have variable-rate credit cards that are tied to the prime rate, interest rates on those cards will drop in the coming weeks along with interest rates on home equity lines of credit. How much they drop and how soon depend on the issuer.
Q. What about my mortgage?
A. If you have a short-term adjustable-rate mortgage, Tuesday's Fed action should help lower your rate, but more likely by a half-point or so, not the three-quarters of a point that the Fed cut its federal funds rate. The one-year rate on Treasury bills has dropped to 5.25 percent from 7.5 percent last summer, so if you have an ARM that's pegged to T-bills and will reset soon, you can expect some relief.
—By staff writer Leon Stafford and Tony Pugh of McClatchy Newspapers
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