MONTGOMERY, AL (WSFA) - When the stock market plummeted a thousand points not long ago, many saw it as a sign Wall Street investments are no longer safe bets.
"When fear takes over, people head for the hills," said one investor.
So how do you save money on your investments in an economic climate like this? WSFA 12 News turned to the experts at McDonald, Barranco and Sanders for a little advice.
Financial Planner Brandt McDonald says there are ways to protect your money, but the rules are changing.
With higher government spending in Washington, McDonald says we'll soon see higher taxes, higher inflation and higher interest rates.
To prepare for higher taxes, McDonald says consider a Roth IRA (Individual Retirement Account), which allows you to withdraw your money in retirement tax free.
"For some people, it may be better to go ahead and pay the tax on their IRA today while their investments and their tax rate are at their low point, so when the accounts do recover down the road, they're able to pull those investments out tax free in a much higher tax rate environment," McDonald explained.
In an environment of higher inflation, experts say companies that produce raw materials like metals, oil, and natural gas are likely winners. Usually, however, these types of investments carry some risk.
That's why McDonald recommends you let someone else make the decisions.
"There are mutual funds and ways you can indirectly invest in these types of securities and do it fairly conservatively," he said.
To combat higher interest rates, don't invest in anything long-term. Shorter-term certificates of deposit, for example, allow you to change your approach as soon as interest rates change.
"In fact, all of our fixed income portfolios at McDonald & Barranco have shortened maturities to one year or less," McDonald said.
In a volatile economy, experts also recommend sticking with companies that have proven track records that pay dividends, meaning you still make money whether the stock price goes up or not.
And by all means, monitor your investments.
"You can't just sit back and do the old buy and hold strategy anymore," McDonald explained, because nowadays you never know what will happen next.
That means rebalancing your portfolio more often, reallocating money between different asset categories, depending on current conditions.
Dollar cost averaging is another proven method of weathering the stock market's ups and downs. Watch the WSFA 12 News WEB EXTRA above to learn more about how it works.