I have been thinking about financial wellness a lot in the last couple of months. On September 5^th, I wrote a blog, "Financial Wellness … What does it mean to you?" exploring the definition of financial wellness. Over Thanksgiving weekend, my husband and I had time to sit down and think through our financial situation. We talked about how financially secure we feel in some ways, and don't feel in other ways. Talking about it helped put the current financial situation in perspective. However, I imagine financial wellness and financial security are concepts most of us don't spend much time on until they're lacking.

Lately many people's financial security has been shaky. Overall, people's homes, jobs, and investments all seem much less secure than they did a year ago. I know many people are wondering, "What should I do about my investments?" And, "What can I do to manage a work layoff or a cut in work hours?" Or, "What are my best choices to prepare for this unusual economic time?"

University of Illinois Extension's mission is to help people make informed decisions about all kinds of topics, including finances. We recognize that this unusual economic time requires a special focus. Thus, we have initiated the Getting Through Tough Financial Times (GTTFT) initiative. The GTTFT resources are designed to help you identify ways to manage your resources wisely during this financial crisis.

The new Getting Through Tough Financial Times website provides timely resources, links to related money management resources, and a listing of events throughout Illinois. This is your "one-stop" shop for all University of Illinois Extension resources that will help you if your financial security is threatened. Currently, the website is organized around such topics as: Avoiding Money Traps, Setting Spending Priorities, Managing Your Debt, Talking with Creditors, Saving and Investing in Turbulent Times, and Spend Smart/Save Smart tips. New resources are added weekly as the economic situation evolves.

Another upcoming resource, "Saving and Investing in Turbulent Times," is a statewide teleconference seminar with campus-based professors and Extension educators (most who are regular contributors to this blog) to help answer questions regarding what to do with your money in today's market. U of I Extension provides factual information not motivated by sales of investment products. During the seminar, we will talk about:

• How the economic situation affects different types of investors;
• Lessons we can derive from behavioral economics and previous market history;
• Sound investment and risk management strategies; and
• How to choose a financial professional and protect yourself from fraud.

In addition, the final half hour will be a Q & A session. Bring your questions!

The seminar will be offered at local University of Illinois Extension offices by teleconference on December 16, 2008 at 1:30 p.m. or 7:00 p.m., and repeated on January 20, 2009. Contact your local County Extension Office for registration information. This event is part of the GTTFT initiative.

I hope that our financial wellness – both for individuals and our nation – improves significantly in the next year. In the meantime, it's up to us to manage our financial resources as best as we can. Click on my name below to ask questions or add a comment related to this blog. I would love to hear from you :)

I picked up a copy of USA Today on Tuesday (Nov. 18) and noticed an interesting statement. Under a heading declaring "Financial advisers split on asset reallocations," a green piggy showed that 53% of financial advisers have "recommended asset reallocations to their clients because of the current economy."

You might assume that this means financial advisers are telling clients to sell stocks and stock mutual funds because the losses have them scared. But I wondered whether it might mean just the opposite: maybe these advisers were simply rebalancing their clients' portfolios, just as I wrote about in a previous post, How's Your Asset Allocation? Time to Rebalance?, and might have actually been buying stocks or stock mutual funds. I decided to investigate.

The source of the USA Today info was listed as an Investment News survey of 765 financial advisers conducted between October 1 and 6. So, I went in search of the whole story and found the news release from Investment News. Here's the deal:

There were actually two surveys, one of financial advisers (by Investment News) and one of investors, conducted by Crain's. Among financial advisers, just over half (53%) were recommending that their clients reallocate investments. Among individual investors, only about one-fourth (27%) reported that they had moved money out of one type of investment and into another within the past month. The apparent conclusion might be that advisers are panicking more than individual investors, and selling investments that have lost lots of their value- stocks and mutual funds that invest in stocks.

But let's look further into the news release.

Exactly what investment changes did those advisers suggest to their clients?

• 57.5% recommended selling stocks or stock mutual funds.
• 56% recommended investing in those same investments.
• 24% recommended selling bonds or bond mutual funds.
• 42% recommended buying them.
• 21% recommended withdrawing from bank savings accounts.

Hmm. Could it be...some of those financial advisers may have checked their clients asset allocations, realized that the proportion of their portfolios in each asset class had shifted, and are simply selling those that have become overweighted? What did the 21% who suggested taking money out of the bank plan to do with that? Either put it under the mattress or...use it to invest in beaten-down stocks, maybe?

The news release states that individual investors were much more likely to "stand pat" than the financial advisers. Among those who did make changes in their investments, the pattern seems to indicate that they were simply moving to cash out of fear that they might lose even more money in other investments: 59.6% had sold stocks and stock mutual funds, "36.5% had liquidated investments into cash and 32.3% had deposited money into bank savings accounts." That sounds more like selling as a result of fear, rather than rebalancing according to a plan.

So I respectfully desagree with the implication of the USA Today Snapshot and the news release. Maybe advisers were selling off equities in a bit of a panic, but maybe they were rebalancing according to investments plans and policies that were put in place long before the current financial situation. The fact that fewer indivduals made changes could mean that they were less likely to have a plan for their investments, and therefore did not realize that they might need to rebalance their portfolio - not that they were being calmer, wiser decision-makers than the advisers.

My suggestion is this: read between the lines, think critically about what you read, and draw your own conclusions.

(In case you were wondering why some of those numbers don't seem to add up: In both surveys, respondents could select more than one response to each question.)

Most investors have their money divided between stocks, bonds, and cash. If you have a plan for how you invest, that plan probably gives a target asset allocation - the percent of your investments you want in each of those asset classes. Your target asset allocation may use more specific categories, providing percentages for stock in large US companies (large cap), small US companies (small cap), foreign stocks, and others.

The current market turmoil may have thrown your asset allocation out of whack. Many people rebalance on a schedule, say, once a year. Another rule of thumb used by some financial experts is to rebalance when your allocation varies by 5% or more from your target. It's very likely that the recent drop in stock prices has thrown your asset allocation off by at least 5%.

How should you go about rebalancing? You can do it all at once, or eat away at it over a period of time. You could sell investments in the asset class you now own too much of (probably bonds or cash right now), and use the proceeds to purchase more of what's lost value (stocks). Or, you could direct new money, such as contributions to your employer retirement plan, into underweighted asset classes. If you need to generate income for current expenses, you could sell investments in an overweighted asset class.

You could use interest, dividends, or capital gains to make new investments in the asset class you need to build up. This is the slowest approach, but it may be especially appealing if your investments are in a taxable account and selling would leave you with a taxable gain. However, check whether you will pay a fee for each purchase.

Income taxes are one of several things to consider before taking action.

• Income taxes: You can buy and sell investments within a retirement account without tax consequences. But if you sell an investment at a profit that's in a taxable account, you will have either a taxable gain to report on your income taxes, or a loss that you can use to offset other gains or, with certain limitations, regular income. For more information, see IRS Publication 550, Investment Income and Expenses (http://www.irs.gov/pub/irs-pdf/p550.pdf).
• Transaction costs: For certain types of investments, there are fees for purchases or sales, penalties for taking money out or closing accounts. Examples include:
  • Commissions or broker fees for buying or selling stocks and bonds.
  • Loads for purchasing certain mutual funds (A shares), or back-end loads for selling them before a certain number of years have passed (B shares).
  • Surrender charges for taking money out of annuities before a certain number of years have passed.
  • Early withdrawal penalty taxes for taking money out of retirement accounts before age 59 ½. For rules and exceptions, see Rules for Taking Distributions from Tax-Deferred Retirement Plans at http://www.ace.uiuc.edu/cfe/retirement/takingdistributions2007.PDF.)
  • Frequent-trading fees: Some retirement plans impose fees on investors who exceed the allowed number of transfers. Certain mutual funds assess a charge if you transfer money out too quickly. Check your plan documents or mutual fund prospectus.
• A single transaction versus a series of smaller ones: If you decide to buy or sell substantial amounts of any one investment, the costs, if any, may be lower if you do it all in a single transaction.

Rebalancing may well improve your investment returns over time, since it forces you to sell investments that have risen in value and purchase more in asset classes that have dropped in value.

Let me know your thoughts about rebalancing, and how you decide when to do it.