Jean Chatzky, one of the best personal finance writers around, just wrote her first column for Newsweek.  This column is titled “How to Protect your Portfolio from Politics” and also appears with a slightly different title, “Jean Chatzky: Surviving the Debt Deal” in thedailybeast.com.  It is a classic Jean Chatzky article, focusing on what you can control, and hitting a topic that’s on the mind of many – how to protect your assets given the economic turmoil we face.  After all, you can’t control Washington, but you can do some things to protect yourself from what they do.

To say the least the August has been a wild ride for stocks.  In fact, in just four days in early August, Carlos Slim, the richest man in the world, lost $8 billion!  Certainly, the losses to the average American haven’t been that high, but all losses are tough, and the strain that comes from financial uncertainty has climbed as the market whipsaws up and down.

What advice does Jean give in her first Newsweek column?  It is very basic, and very good advice.

• Have a solid emergency fund – “maintain enough liquidity,” something we cover in Ch. 5;
• Reduce risk through diversifying – “increase your diversity,” which we talk about in Ch. 11;
• Save – “make sure you’re saving enough,” saving enough is tough, it’s just not natural for many people to live below their means, but with the help of a budget, which is covered in Ch. 2, it can be done;
• Rebalance your investments – “don’t let your myopia get the better of you,” which we talk about in Ch. 11.

Without question, these four acts will pay off if you follow them.

Discussion question:

1. The final point that Jean Chatzky makes is not to let your myopia get the better of you, which involves both staying the course and not falling prey to bubbles.  Where do you think the economy and stock market are going?  Where do you think the DJIA will be in one year?
2. Why do mutual funds provide diversification?  And what types of mutual funds might give you the maximum diversification?