Personal Finance Advice

The stock market has been doing well recently, however many investors are worried as it is becoming increasingly volatile. With the general belief that the Federal Reserve will once again lower interest rates in the near future, bond prices have risen lately. After many years of unprecedented growth, the real estate market is in a state of upheaval. No one knows what the future will bring.

It is more important than ever that investors review their asset allocation and make sure they have a proper diversification strategy to mitigate the risk in any particular market. More and more financial analyst are even favoring a worldwide diversification strategy. While it may be difficult for any single individual to invest in foreign securities there are mutual funds that specialize in overseas markets.

Different investors will have different financial goals they will want to achieve as well as differing degrees of risk they are willing to take on. Someone who is approaching retirement will have a completely different diversification strategy then someone that has just graduated from college. A short term investment strategy may have a higher allocation in bonds and money markets. Long term investment strategy favors stocks and real estate markets.

It is important to note that no matter how diversified your portfolio is, if the economy takes a general downturn, some losses simply can’t be avoided but they can be minimized.

Last week the Internal Revenue Service announced it’s 2008 inflation adjustments to its tax code. A number of these changes will impact how much you will be able to save for your retirement. Generally you will be able to contribute more to your pension and retirement plans than in previous years. However it is also important to note that a number of key figures remain unchanged, including the maximum annual contribution to a 401(K) plan which will stay at $15,500. For individuals over 50, the maximum additional contribution will also remain unchanged at $5,000.

Key Changes

1. “The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.”

2. “The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.”

3. “For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).”

4. “The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.”

Talk to your financial advisor to discuss how these changes will affect your retirement planning. For a complete list of 2008 inflation adjustments, you can visit the IRS web site.

Americans are finding it harder and harder to save money these days. Recent data released by the government show inflation rates as stable this year, but some economists, as well as many consumers remain skeptical. Keep in mind how falling prices in the housing market can skew some of these numbers and make the picture look better than it really is.

Food prices have risen at their highest rates in nearly 30 years. Energy prices continue to skyrocket to unprecedented levels. These changes are having the biggest effect on the majority of Americans, those who are in the lower and middle classes. Many are starting to feel the pinch in their wallets while at the supermarket and when they hit the gas pumps. And with winter fast approaching they can also expect a jump in their heating bills.

Some experts warn that the situation won’t improve anytime soon and that it’s not just a local problem but a worldwide phenomenon. Uncertainty in world oil production and increased demand as more and more third world nations become industrialized may lead to a world energy crisis in the next few years. Crop production is at an all time high but there has been a sharp surge in demand in recent years as a growing percentage of it is being shifted to the growing ethanol industry, thus leading to higher food prices.

While many economists believe it’s not serious problem yet, they do caution that if the situation continues, it could have an adverse effect on future economic growth. Nobody needs an expert to tell them that their paycheck is starting to look smaller and smaller these days.