First Aid for Retirement Portfolios

For the past year the economy has been rubbing salt on our wounded investment portfolios. Most of us have stuck it out while some are shaking their heads on the sidelines with their portfolios halved, sitting in cash, waiting for the next sure thing. With pundits pounding their chests about the worst recession since World War II they are also claiming that it will all be over by the end of 2009. Not 2010 or 2012, but all of twelve months away. And when the turnaround hits, you're going to want your money there when it happens.

Check Expenses, Not Balances

The first thing to do is to take a look at your portfolio. Do you even know what you're invested in or what it costs? If you've been hiding your unopened statements in a drawer it's time to open them up. Don't look at the balances, just Google the funds to find their expense ratios. If your funds are charging you more than 1% and this is the first time you've looked at your accounts in six moths, seriously consider index funds.

The Lazy Investor's Best Friend

Index funds are groups of stocks that track portions of the economy and they are great low-cost, long-term, low-maintenance investments. Unlike mutual funds with an investment manager constantly buying and selling stocks, index funds are managed by computers who work for cheap. Thus the lower expense ratios. Anyone who doesn't want to spend hours every week tracking their investments or their investment managers should take a close look at index funds and put their long-term investments to work. Most index fund expense ratios are under 1.00, also called "1 percent" or "100 basis points." Most actively managed funds will run you 1-2% in annual fees.

Money for Nothin'

With Treasury rates swirling the drain you can expect any interest you are earning on your savings to drop with them. Hopefully your bank's rates will stay afloat, but if not, fight the urge to take your savings and do something "productive" with it. Keep your cash where it is. If you use it to pre-pay debt or replenish your retirement funds and something happens you'll have to turn to credit cards to keep you afloat. Remember, the purpose of an emergency fund is to keep you from emergency debt.