9 financial resolutions for 2009

Start with a reality check -- and then get smarter about your investments, retirement plans and your home. Here are experts' suggestions; feel free to add your own.

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By Catherine Holahan, MSN Money

Here's hoping 2009 is much kinder to investors than the past year. Since wishful thinking won't get the job done, we asked some experienced financial planners for their suggestions on rebuilding your net worth. Here are nine financial New Year's resolutions they gave us.

Surprise: They're not all about saving more and spending less.

1. I will accurately assess my financial situation.

Examine your bank statements for the past 12 months. What do they say about you? Are you a credit-crazed spendthrift who shells out more on monthly interest payments than on basic necessities? Are you a risk-averse saver whose only asset is cash? If you maintain your current asset allocation, will you ever be able to retire? Even at 90?

We ask: What's your financial resolution?

"Take the time to look in the mirror and make an honest assessment of where you are," says Lee Baker, a certified financial planner with Apex Financial Services, based in Atlanta. "What does your credit card debt situation look like? Have you been making sufficient contributions to your 401(k)? If you don't really know or acknowledge where you are, you are counting on luck to make a better financial future, and that doesn't work."

Hopes for the year ahead

After appraising your finances, set realistic goals. Don't say, "I'm going to save $20,000 this year," Baker says. For the average investor, that number is too large and abstract. Instead, resolve to save, say, $1,600 a month by increasing contributions to your 401(k) account and eliminating nonessential expenditures, such as your budget for dining out, the gym membership you rarely use or the taxicabs you regularly take instead of the less convenient transit system.

Talk back: What are your 2009 money goals?

2. I will diversify my assets -- for real this time.

Once upon a time, a well-diversified portfolio meant owning a mutual fund with an array of stocks from different sectors. Not anymore, says Phil Carrasco, a certified financial planner at Cornerstone Wealth Management. When the market declines 40%, even a portfolio that includes large-cap U.S. companies, small high-growth companies, international stocks and bonds will take a beating.

Corporate bonds, in particular, have been disappointing in this market downturn, as fears of massive corporate defaults have undercut the low-risk profile of the bonds. This has prompted investors to exit for the relative safety of U.S. Treasury bonds, even when Treasurys are paying close to nothing in interest.

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To make matters worse, the major economies of the world seem to be deteriorating in tandem, so there has been little cushion in international diversification.

"What we used to think of as diversifying isn't because U.S. stocks and international stocks move in virtual lockstep," Carrasco says. "Diversifying means holding assets that have little to no correlation with the stock market."

Carrasco recommends his clients diversify by holding real-estate investment trusts, known as REITs. Many REITs make money by buying land that they then lease out to corporations. Their earnings are, essentially, the rent paid by the corporate tenants. Carrasco's preferred variety -- nontraded REITs, a less liquid type in which shares can be traded only by the REIT as a whole and not by participating investors on their own -- can be good assets in a down market because corporations can't easily stop paying rent or change locations.

As with any investment, however, investors should use caution when buying REITs. Though Carrasco says his nontraded REITs have increased in value this year, most REITs have declined. The Wells Dow Jones Wilshire Real Estate Investment Trust Index is down nearly 32% this year, but that's better than the market's overall performance. Shopping mall REITs are down almost 60% for the year. That performance is significantly worse than the Dow Jones Industrial Average ($INDU), which is down 35.3%.

Financial planners also recommend structured notes as an asset class that's useful in hedging against extreme market downturns. Structured notes can act a lot like bonds from an investor's point of view but frequently include provisions designed to protect the purchaser against market shocks.

For example, a structured note could guarantee that investors would receive all or part of their principal investments back, even should it decline in value, in exchange for forgoing a percentage of the profits should it increase in value. This kind of investment requires a thorough understanding of the particular security under consideration and ought to be discussed with a good financial planner.

Talk back: Best money advice you ever got?

3. I will contribute more to my 401(k) -- or at least start contributing.

The goal of investing is to buy low, sell high. So the last thing investors should do right now is sell their 401(k) holdings, Baker says. Doing so would lock in losses and make catching the recovery less likely. Instead, investors should consider buying more stocks for their 401(k) accounts and increasing their contributions over the next couple of years.

"I don't pretend to know the future, but looking at the past . . . equities are fairly cheap," Baker says. "There is no guarantee that they are going to go up tomorrow or the next day, but if you are an investor with a longer timeline, now is a good time to buy."

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If investors really can't stomach the market's volatility, they should at least continue to contribute the percentage of income that their companies match. Otherwise, they're not saving themselves from a downturn -- they're losing out on an additional 3% to 5% of salary.

"Over the last few months, there are a number of people who have either A, stopped making contributions to their 401(k), or B, at least contemplated it," says Baker. "If you're so afraid, at least go into a money market or stable value fund, because you can't make up the match you have from your employer."

4. I will stop obsessively checking my 401(k) performance.

Unless you were planning to retire in the next few years, save yourself the stress of constantly checking your 401(k) performance, says Gordon Bernhardt, the president and CEO of Bernhardt Wealth Management. For long-term investors, there's not much you can do anyway. If you try to time the market, you'll likely end up paying more in fees and still not seeing much upside.

"Be patient," Bernhardt says. "Our economy is resilient, Americans are resilient, and this is a big decline. This isn't like Black Monday in 1987, where within three months you will be back to where you were. This is going to take longer."

5. I will improve my credit.

The first step to improving your credit is to know where you stand, Baker says. He recommends that clients obtain credit reports in order to have full pictures of their creditworthiness and understand what -- if anything -- could give lenders pause. (See "How to get a credit report for free.")

"See if there is anything out there that was a mistake or if you have a bill out there somewhere that just didn't get paid," Baker says. "Make sure to clean that up now."

A better credit rating means banks will charge less to lend to you. For homeowners, that means potentially refinancing at lower interest rates. For those with credit card debt, it means possibly obtaining a card that charges low or zero interest for a time, enabling you to pay off bills more quickly.

The second step to improving your credit is paying off those credit card bills. Prioritizing here is key, says Baker. Some people will want to tackle the cards with the highest interest rates first. For others, it makes more sense to pay off some of their lower-interest cards in full, enabling them to better organize their debt by reducing the number of creditors to manage.

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6. I will stop thinking of my home as a lending institution or get-rich-quick scheme.

Here's the hard truth: Excluding the recent housing bubble, home prices typically didn't increase 12% to 20% a year. Property values grew at a more modest rate of 3% to 5% a year, just beating inflation. Such rates are what people should likely expect for the foreseeable future, Baker says.

"You have to ask, 'What was your house to you?'" says Baker, adding that if it was an investment property, you may want to rethink your ownership of it. "Most people look at their house as a place to live."

7. I will get my home reappraised.

A small benefit of your home's decrease in value is that you should owe less property tax, Baker says. However, you won't realize the tax benefits unless your property is reassessed.

So, if you think your home is worth less, Baker recommends paying an appraiser to re-evaluate the property, then submitting the new assessment to the municipality. If your home value has fallen significantly since your last assessment, it may be worth paying a lawyer, if necessary, to contest your latest property tax bill.

Of course, if enough people successfully challenge their property assessments, your city might raise rates to make up for a revenue shortfall. Ultimately, you could end up paying the same amount. Still, large tax increases often have to be approved by voters. In the interim, you'd likely save some cash, if your home value had decreased dramatically.

8. I will budget for charitable giving.

It's easy to forget those less fortunate when you're feeling less fortunate yourself. Don't, says Bernhardt, of Bernhardt Wealth Management. Not only do charitable donations help you save on your taxes, but helping others can have a positive impact on your psyche and, if enough people donate to domestic causes, the economy.

"It is important in times like this to have a grateful heart and a thankful heart for what we have because there are a lot more people worse off than we are," Bernhardt says. "These charities all need volunteers, so it doesn't have to be money. But if we can make that financial contribution, ultimately, we should."

9. I will review my contracts.

Over the years, the bills you routinely pay for services such as long distance, unlimited mobile phone use and cable TV have likely crept up. Now is the time to renegotiate those contracts, Baker says. Perhaps you can sign up for a new phone contract with fewer minutes or qualify for special deals that the company is advertising to entice new customers.

"These companies don't call out of the goodness of their heart and say, 'Hey we've got something cheaper,'" Baker says. "You have got to review your contracts."

Produced by Darragh Worland

Published Dec. 31, 2008