Financial Crisis Management
Watching the stock markets plunge more than 34% in 2008, investors at all levels are feeling the strain and wondering what to do as the markets continue to slide. Before you make any investment move, get the facts. Here are some important things to consider:
- What is a “Real Loss”? You only have a realized loss if you actually sell an investment at a price below its purchase price. Watching the value of a portfolio of investments decline in value, sometimes steeply, can be frightening. While it is important to think about how to preserve the value of your assets, don’t let panic drive your decision making. Remember, you realize a loss only when you actually sell an investment and you control the timing of any sale.
- Thinking about Cashing Out Your 401K Early? Before you do, make sure you are aware of the consequences. If you cash out before you are 59 ½ and do not roll the proceeds into an IRA or another employer’s plan within 60 days, • You may have to pay federal income tax on the entire amount;
- Your current employer is required to withhold 20% of your account balance to prepay the federal taxes;
- You may owe state and local tax on your distribution;
- You may also be subject to a 10% early withdrawal penalty tax by the IRS.
- For more information: What You Should Know About Your Retirement Plan (U.S. Department of Labor, Employee Benefits Security Administration)
- Considering Asking for Help from a Financial Services Professional? Check first. A financial professional may be the one to help you get through this financial crisis. However, it is critical that you check out your investment adviser or broker salesperson before you entrust them with your money. Getting information about a financial services professional is easy. You can call your state’s securities administrator’s office and they can check an individual or company’s complaint history, employment history and proper registration with the state. Also, be sure to ask how your financial services professional gets paid. Do they receive compensation via a flat fee, commissions on transactions, or some other method? Do they receive their compensation on the front end or the back end? Don’t rush into signing anything, and consider asking a trusted friend or objective family member to help review your decision.
Remember, if a professional or anyone else is offering returns that are too good to be true, they probably are. Get more information and be cautious.
Do you know which of your accounts are insured?
- Bank Accounts
- All deposit accounts at insured banks and savings associations, including checking, NOW, and savings accounts, money market deposit accounts and certificates of deposit (CDs) up to the insurance limit.
- Insured by the FDIC (Federal Deposit Insurance Corporation), which is an independent agency of the United States government that protects you against the loss of your deposits if an FDIC-insured bank or savings association fails. FDIC is backed by the full faith and credit of the United States government.
- Protection limits: $250,000 per bank or savings association (unless the account(s) meet certain requirements), and up to $250,000 for certain retirement accounts.
- Brokerage Accounts
- The cash and securities, such as stocks and bonds, held by a customer at a financially troubled brokerage firm that is a member of SIPC. SIPC can help when assets are stolen by a broker or put at risk when a brokerage fails for other reasons.
- Insured by SIPC (Securities Investor Protection Corporation). Though created by Congress through the Securities Investor Protection Act, SIPC is neither a government agency nor a regulatory authority. It is a nonprofit, membership corporation, funded by its member securities broker-dealers.
- Protection limits: Securities in your account at a SIPC member brokerage up to $500,000, including a maximum o $100,000 for cash claims.
Whats NOT Insured
- Investments in mutual funds (stock, bond or money market mutual funds), whether purchased from a bank, brokerage or dealer
- Annuities (underwritten by insurance companies, but sold at some banks)
- Stocks, bonds, Treasury securities or other investment products, whether purchased through a bank or broker-dealer.
- Losses due to market fluctuation, poor investment decisions or lost investment opportunities
- Investments in commodity futures, fixed annuities, currency, hedge funds or investment contracts (such as limited partnerships) that are not registered with the SEC
- Accounts of partners, directors, officers or anyone with a significant beneficial ownership in the failed firm
Contact information for all state and provincial securities regulators is available here.
Prepared by the NASAA Investor Education Section’s Rapid Response Outreach Group 2009. Download the PDF.