The whole world is in the midst of a major financial crisis and everything we once thought was true, no longer is.  It’s time to drop all your old concepts and toss out the rulebooks—the rules have changed, and so has the entire financial landscape.

The S&P 500 is at a five-year low and the DOW, down from its peak of around 14,000 has been hovering below the 9000 level.  The daily market swings have been so extreme that a 100 point change in a matter of minutes has become the norm.  People aren’t sure what to do: get out of the market, get back in or do something else entirely. We’ve seen the demise of major economic icons and markets collapses that have turned fortunes into dust.

While this may not be much comfort to the moms and pops that have watched their retirement savings get blown away, even Bill Gates and Warrant Buffet have taken big hits with combined losses so far totaling $17.1 billion! Granted, those two financial wunderkinds will survive, but how do the rest of us ride out the recession?

Buck up! Here are few tips to put things into perspective and keep us moving forward.

1.) Accept it, we are in a recession

We’ve been hearing recession rumors for over a year.  Well, guess what? It’s here.  Now what do we do? We fasten our seat belts, tighten our own belts, and hunker down to ride it out.

Not only are we in the midst of soaring unemployment, plummeting markets and disappearing retirement accounts, President Elect Obama has wisely told us to prepare for things to get worse before they get better. In other words, let’s snap out of denial so we can move forward.

As hard as this may be to accept, keep in mind that recessions are part of economic cycles. Economies expand, economies contract and the world keeps spinning. We’ve lived through recessions in the past and we’ll live through them in the future. Stay positive, we’re all in this together.

2.) Panic is not a strategy

If you keep your TV turned to CNBC or any of the round-the-clock financial news networks, you can easily become distressed and depressed  . . . that is unless you’re comfortable with uncertainty and volatility. Not many of us are, but volatility is actually normal and is just one of the risks we have to live with.

Markets are irrational by nature, they go up and down based on geopolitical, social, economic, rumors, bailout announcements, and the like. A small percentage of consumers react well to these sharp and cyclical moves while the majority go into panic mode.

Investors—and I use that word loosely—become irrational.  They start selling off when they should be buying and buy when they should be selling. These overreactions are a good indication that they do not have the know-how or the stomach to play the market.

3.) Know your risk tolerance

The first thing every so-called investor needs to determine is their own risk tolerance—what are their long-term goals and how much risk they are willing to take to reach those goals.

It’s a fact that few people understand their own risk tolerance, or even what factors to consider when measuring it. That fact is just one of the things that inspired me to write my book, The Big Gamble: Are You Investing or Speculating?  There is a whole section on risk tolerance.  If you read it, it could help you measure where you stand so you’ll be prepared to make the right choice when you’re ready to get back into the market.

4.) Getting back into the market

When is the best time? The simple answer is, anytime is the best time if you have the right long-term strategy in place. I can’t recall a time when quality stocks have had such low valuation ratios. If you’ve got the ready cash, picking up bargains could be like shooting fish in a barrel.

The decisions you make with stock purchases in the midst of a market crash will impact your bottom line going forward.  If you have a long-term plan and if you make the right decisions, you could profit handsomely. But the reverse is also true.

First you need to understand that there are no guarantees. Even if you were to pick up some stunning bargains, if this recession were to fall into a depression, you might loose it all.  What you call “investing,” we call “speculating.” The book I mentioned, The Big Gamble, offers some critical points on how to tell the difference. But the bottom line is, it’s all speculation. You need look no further than to what’s happened with today’s Blue Chips and the auto industry to recognize that. But speculation is not a bad word. You just have to know how to recognize the opportunities and how to position yourself.

5.) Read the book!

Finally, here’s my last tip. Read The Big Gamble: Are You Investing or Speculating? Donald Trump calls it “A good read.”  It’s filled with tips on how to recognize the next big financial bubble and shows you how to either avoid losing your shirt, or take your chances and reap rewards from it.   Once our economy gets back on track, you could be better equipped to make smart moves.

Let’s keep this all in perspective. The Great Depression was far worse than today’s recession. Back then unemployment ranged as high as 40%, compared with below 7% today. Interest rates are still relatively low and while the economy is struggling and likely to hobble along like this well into next year, we are not in a contraction as serious as the one our parents and grandparents suffered through.

If the Obama administration and his carefully-chosen team members live up to the high expectations that have been thrust upon them, hopefully the damage can be contained.

After years of the untamed, out-of-control free-market ride, we might end up with new regulatory and financial models to help us emerge from the wreckage. If we hang in there, the public sector as well as the government can turn this crisis into an opportunity—a situation where we’ll have a stronger, more transparent financial system and we can start managing our own personal spending habits.

Meanwhile, turn off the TV, push back from the computer and put down that newspaper.  Call a friend, take a walk, get some fresh air.  Sure, getting thorough this is going to take some tough love, but we’ll survive.

Tags: loans, mortgage