In the wake of Stan­dard & Poor’s recent down­grade of U.S. Trea­sury debt and with unem­ploy­ment rates remaining high, the nation’s trou­bled economy is a con­stant topic of dis­cus­sion. We asked Nicole M. Boyson, the William Conley Fac­ulty Fellow and Pro­fessor of Finance in the Col­lege of Busi­ness Admin­is­tra­tion for some tips to sta­bi­lize indi­vid­uals’ per­sonal finances as they ride out the reces­sion. 

Given the economy’s cur­rent state, what are the safest invest­ments?

The market reac­tion to the down­grade has been for investors to buy Trea­sury bonds, not sell them, implying that most investors still believe in the long-​​term secu­rity of Trea­sury bonds. I would argue that both Trea­sury bonds and cash are safe invest­ments right now‚ if an investor plans to hold those bonds to matu­rity. The down­side of this strategy, of course, is that rates on Trea­sury bonds are so low that infla­tion can eat away at any returns the investor earns.

In the cur­rent economy, stocks have been much more volatile of late, which makes them feel much riskier. 

What steps can people take to help ensure finan­cial sta­bility in the event of a double-​​dip reces­sion?

If you’re already have a finan­cial plan in place, you should stick with it and avoid wor­rying too much about the short-​​term impact of another pos­sible eco­nomic down­turn. Specif­i­cally, if you are invested in the stock market, and your allo­ca­tion to stocks is appro­priate for your level of risk tol­er­ance, now is not the time to sell. If you’re a 25-​​year-​​old investor with most of your assets in the stock market, for example, wait this out. You have plenty of time ahead of you to recover this down­turn.
If you’re older and closer to retire­ment and have more allo­cated to the stock market, this is a harder ques­tion. It is pos­sible the economy won’t recover in time for you to recoup your losses. While I would not rec­om­mend selling all stocks at this point, you might need to adjust your lifestyle and try to save more to help make up for these losses. 

What should stu­dents and recent grad­u­ates do to pre­pare them­selves for long-​​term finan­cial health?

Read, read and read some more. Edu­cate your­self on the basics of per­sonal finance, including bud­geting, saving and investing. Take classes in invest­ments and per­sonal finance. Don’t run up credit card debt, and if you do, pay it off as soon as pos­sible. 

Regard­less of your credit card bal­ances, if you are a grad­uate with a job, start investing in your 401(k) plan. Try to save at least enough to get the com­pany match, but if you can’t afford this amount, at least save 1 or 2 per­cent to give you a head start. When you get raises, put half of your raise in your 401(k) plan. But most impor­tantly, live within your means and avoid taking on excess debt.