The current economic times have generated many changes in the financial industry.  New rules coming with the Credit CARD Act are leading creditors to find creative ways to remain profitable.

     But many consumers have not been profitable when it comes to their investment accounts.  The stock market drop of 2008 sent many investors to the sidelines with the much smaller remaining balances of their retirement accounts.

     While many investors slowly started to inch their way back into the market in 2009, some are still extremely hesitant to do so.  Here are a few tips to help get those investment accounts back on track moving forward.

Get back in the market

     The most important step to recovery is to stop sitting on the sidelines.  As scary as the market may be (or have been), there will be no recovery if the money is not invested.

     At best, sitting in cash will protect what is left.  Unfortunately, as the cost of living continues to rise, the spending power of that money falls.  So, in effect, the money is continuing to shrink.

     There are ways to get back into the market with less risk.  There is no guarantee that there will not be periods where the account balance falls.  However, the chances of recovery are better when the money is invested.

Dollar cost average

     One way to ease back into the market is to dollar cost average.  This means that investments are purchased at regular intervals over a designated amount of time.  Some investors choose to dollar cost average monthly over six to 12 months.

     Dollar cost averaging helps reduce the risk involved with market timing.  Since all money is not invested at one time, the investor does not have to worry about whether the date the money was invested was a “bad” time or a “good” time.

     Investing a portion of the account balance each month allows an investor to buy shares of each investment at different purchase prices.  Some months, the market will be doing better and the purchase price will be higher.  When this occurs, fewer shares will be purchased.

    Some months, the market will be on a downturn and the purchase price will be lower.  This is actually beneficial because the investor will be able to purchase more shares.  Over time, this strategy increases the chances that the average purchase prices of the investments will be lower than if they were purchased all at once.

Consider more conservative investments

     Another tip for easing back into the market is to consider less risky investments.  There are many options.  There are mutual funds designed to invest in more stable investments.

     For example, there are fixed income mutual funds that invest in short-term notes and bonds.  Investors can better diversify a bond portfolio by combining short-term, intermediate-term, and long-term maturities.

     An investor can also consider using mutual funds that combine fixed income with dividend-paying stocks.  While there is some additional risk when including stocks, there is also the potential for higher returns.  These mutual funds may be called conservative allocation or moderate allocation mutual funds.

     After such a market scare, it is understandable why many investors do not want to jump back into the market.  If the investments are not carefully researched and a portfolio is not closely monitored, an account can quickly fall off of the deep end.

     However, there are ways to comfortably get back into the market.  Dollar cost averaging and choosing more conservative investments can enable investors to begin working again toward those retirement goals.

     Many of us have noticed some changes with our credit cards lately.  In an effort to protect consumers, the credit card industry has been forced to make some changes. 

     We saw how credit card cash advances and advance tax refunds brought money problems to many households.  Fortunately, some of the changes coming with the CARD Act will help consumers avoid problems that can lead to serious and long term financial trouble.  On the other hand, creditors are finding new and creative ways to remain profitable.

Overdraft fees

     At one time or another, most of us have been unfortunate enough to have mismanaged our checking accounts and been charged an overdraft fee.  The Credit CARD Act is severely limiting banks’ abilities to charge these fees.  As of July 2010, consumers will have to opt in to be able to overdraft using their debit cards.

Balance transfers

     Teaser rates for balance transfers are few and far between.  While many credit card issuers used to offer extremely low rates for six months to one year on balance transfers, the new rules are making these offers rare.

     The Act has restricted creditors’ abilities to adjust rates on credit card balances.  As a result, introductory rates may be lower than the card’s standard rate, but they are much higher than the 0% that many of us had become used to seeing.

Credit cards for borrowers with bad credit

    It will be harder for people with low credit scores to apply and be approved for credit cards.  In the past, creditors were willing to offer credit cards to borrowers with bad credit.  The issuing credit card company would allow higher risk borrowers a card with a low initial credit limit.  The interest rate would be higher than a “regular” credit card, and there would be an annual fee charged whether or not there was any activity on the card.

     Since the Credit CARD Act has attempted to reduce fees paid by consumers, creditors are having a hard time making these higher risk cards available while still being profitable for them.

Prepaid cards

     Many higher risk consumers who are not able to get a credit card will find themselves opting for a prepaid card.  These cards require users to make a cash deposit to the card.  They are then able to use up to the prepaid balance that is available on the card.

     New rules will require card issuers to disclose all fees to their consumers.  On a positive note, the Act will also extend the length of time that cards are good so that inactivity does not cause a consumer to lose the balance on the card.

     However, card issuers may impose higher upfront and reload fees to make up for lost profits from expired cards.

    Since many of the new rules have not yet come into effect, we are still unsure of how consumers will be impacted.  But, in a time of such uncertainty, it has become much more important for us to regularly review our credit card and bank statements, as well as those “fine print” disclosures that come in the mail.

“Stay in this land for a while, and I will be with you and will bless you.  For to you and your descendants I will give all these lands and will confirm the oath I swore to your father Abraham.”     Genesis 26:3 (NIV)

     Stories that I’ve been told about lifestyles in other countries lead me to believe that we Americans have a problem that is all our own.  Since I can’t call it human nature, I will call it American nature.

     It can go hand in hand with our need for instant gratification.  It can also pair up well with our need to control or fix everything.  In general, I’m talking about our problem with being impatient.

     When we find ourselves in a situation that is a bit uncomfortable, we try our hardest to get out of it.  Sometimes, we move so quickly that we realize (too late) that the new situation is even worse than the one we just left.  We just didn’t take the time to carefully evaluate the consequences.

     Our key verse today gives us a few reminders about a better way to deal with our impatience.

Sometimes we have to wait

     Genesis 26:3 tells us to “stay in this land for a while.”  Even when we are not happy with where we are in life, there are times when it is better to stay still.  We don’t know what God has in store for us, and we may never find out if we move too quickly.

     We may not be extremely excited with our work environment.  But, we do have a source of income.  We may think we need a bigger house.  But, our family is safe and warm.  We may think we need a better car.  But, we have reliable means of transportation.  Have we really taken the time to appreciate the things we do have – the things that are truly considered luxuries in many other countries?

God is always with us

     Everything that we endure has been allowed by God.  He is always aware of our circumstances.  God also reminds us in Genesis 26:3 that He will be with us.  How quickly we forget when things take a turn for the worse that we can’t get away from God.

     When we run into a financial challenge that appears to be beyond us, we often try to fix it anyway.  It may be better if we chose to stay still.  Exodus 14:14 tells us, “The LORD will fight for you; you need only to be still.” (NIV)

     Do we give God a chance to help us work through our problems, or do we only turn to Him after we make a bigger mess?

     Granted, we may feel that we have been taken advantage of at work.  We may feel that the creditors are not working with us.  We may feel that we can just never get ahead because someone is always trying to hold us back.

     David shares his thoughts on being still in Psalm 37:7.  He writes, “Be still before the LORD and wait patiently for him; do not fret when men succeed in their ways, when they carry out their wicked schemes.” (NIV)

God will bless us

     We don’t need to stress over the problems that other people try to bring our way.  The third reminder in Genesis 26:3 is that God will bless us and confirm the oath He swore to Abraham.  We are the descendants of an awesome promise.  If we keep our eyes focused on God and not on our problems, He will direct us through those challenges and toward our promise.

     While some media have pushed annuities as bad investments, we know that they do serve a purpose.  However, there are many other financial decisions that have far worse repercussions.  We will look at two money problems that have caused serious damage for many households over the years:  credit card cash advances and advance tax refunds.

Credit card cash advances

     This money problem was a nightmare for me personally.  I remember the first time that I found out that credit cardholders could pull cash off of their credit cards.  At that time, there were still quite a few retailers that did not accept credit cards, so I thought I had hit the jackpot.

     I went into a bank to pull the money off of the card.  The teller was really nice.  She helped me quickly, and I was on my way to do more shopping.  I didn’t get the bad news until about two or three weeks later when the bill arrived.

     Bad news #1 was that there was a fee to access the cash on the credit card.  At the time, the fee was 2% of the amount accessed from the card, or $20, whichever was greater.

     I’m sure the teller disclosed that to me during the transaction, but I was probably in a daze and failed to actually interpret what she was saying.  So, my $200 cash advance cost me $20 right away.  Rather than a 2% fee, that actually worked out to 10% for me.  That was not a good start.

     Bad news #2 was that the interest rate on a cash advance was higher.  For me, it was 22.9%.  My regular purchase interest rate was about half of that.  So, I was basically double charged.  If I consider the access fee of 10%, I was charged about three times the normal interest rate.

     Needless to say, I only did that once.  Unfortunately, many of us don’t read the fine print in our credit card usage agreements.  We also do not analyze our credit card statements to even know if and when something like that is happening.

     We need to take special precautions when it comes to the fees we agree to pay.  More often than not, the things we choose to spend the money on are not worth the extra cost.

Advance tax refunds

     This is another concept meant to take advantage of those in dire straits.  I think that we can honestly address this topic by asking ourselves one question:  Why should we pay extra to get something that already belongs to us and is already on its way?

     We get so caught up in the need for instant gratification.  However, we shouldn’t be so eager.  Proverbs 28:20 said, “A faithful man will be richly blessed, but one eager to get rich will not go unpunished.” (NIV)

     Let’s make a better effort to properly plan for our spending, as well as our tax preparation, so that we do not find ourselves wasting our money on rush services.  There are so many better uses for our financial resources.

     Over the years, the popularity of annuities has gone through many cycles.  There have been times where annuities had a good reputation, then there have been times where annuities have been held in a bad light.  For example, just as mutual funds have fees that we should watch, annuities have been seen as negative because of their higher fees.

     While many “senior” seminars have touted annuities as a solution to almost every problem, they really are not a “one size fits all” kind of product.  The challenge for potential annuity owners is to understand the product clearly enough to determine whether it makes sense for them personally.

What are annuities?

     Annuities are insurance-based products.  When an investor purchases an annuity, they are receiving a guarantee that the insurance company will provide them with a fixed income stream for a designated period of time.  This time period can be a pre-determined number of years, or it can be over the investor’s lifetime.

Supplements other income sources

     As many have come to realize, Social Security does not provide enough for most retirees to comfortably live solely on its monthly benefit.  Unfortunately, without drastic changes, it will only get worse.

     In addition, pensions are becoming a thing of the past.  Very few employers still offer them.  Given the state of Social Security and the almost extinct pension plan, more and more retirees have to depend on their own savings to fund retirement.  A fixed annuity can be a beneficial supplement to these other income sources.

Guarantees against market losses

     After the devastation many accounts experienced during the market crash of 2008, many investors realize that they cannot afford to take such huge risks with their retirement nest eggs.  So many pre-retirees and retirees alike watched their investment account balances get cut in half during the downturn.  Some retirees had to go back to work, and pre-retirees had to delay retirement for several years.

     This market experience has led many investors to seek some type of guarantee for their investment.  Some investors have turned to annuities for this guarantee, but an investor should be careful to review the various types of annuities before making the purchase decision.

     Variable annuities allow the owners to invest in a group of mutual funds that are available on the platform.  This may not be the best option for a retiree, because the account balance will be impacted by the fluctuations in the market.

     Fixed annuities are somewhat different from variable annuities.  It is possible that some retired households can benefit from using a fixed annuity for a portion of the overall investment strategy.

     A fixed annuity can help ensure that the invested principal is not lost.  In addition to not losing principal, the investor is able to earn a fixed interest rate on the principal amount.  Although the interest earned may not be as high as the potential earnings available in the stock market, this annuity eliminates the downside risks of the market.

     Since the annuity payment will remain consistent, a retiree is better able to budget for household expenses.

     Annuities will not solve all retirees’ investment problems, but they can help alleviate some of the unnecessary strains caused by the market.  Retirees may consider talking to an investment advisor about possibly incorporating annuities into the overall financial plan.