6 Big Financial Lessons of 2011

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Many people can't wait to toast 2011 goodbye -- and good riddance. At this time last year, maybe you thought the economy would be a bit more gracious by now. You might have gotten that raise, that new job, finally sold your house, been able to get a mortgage.

Chances are, your financial dreams didn't come true. Which is not to say there haven't been hopeful signs--chiefly that things aren't worse. But when it comes to the recession, most of us are still pretty much stuck.

"Even if the experts tell us the recession is over, if it's not over in your household, it's not over at all," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.

So as we reflect on the year that was, here are half a dozen financial lessons to take away from 2011.

6 Big Financial Lessons of 2011

This year on Wall Street was a wild ride. Yet for all of the stock market's dramatic swings, the S&P 500 is relatively flat for the year, points out Devin Pope, a certified financial planner with Albion Financial Group. Such volatility "probably isn't going away any time soon," Pope says. Turmoil on the global political and economic scene continues to feed a high degree of uncertainty that is likely to be the new normal. If you're planning to stay in the market, make sure you have the stomach for it. 

Despite all the headlines and daily gyrations that can inspire irrational moves, investing is a long-term adventure. "Many people sold investments or rearranged their personal financial plans based on short-term gloom-and-doom predictions that didn't pan out," says Fern Alix LaRocca, a certified financial planner with Advanced Financial Designs. Now they're looking at losses as markets rise, and a shorter time horizon in which to meet their goals.

You've heard it before and you'll no doubt hear in again: Save and invest for the long term.

Don't put short-term money in longer-term assets, advises Doug Kinsey, a certified financial planner with Artifex Financial Group. Maintain adequate liquidity in money markets, CDs and cash. Keep an intermediate term position in 3- to 7-year maturity fixed income assets, and invest the remainder in growth investments such as stocks.

Increasingly, capital markets are closely tied to world markets. "Years ago, we were more or less an item to ourselves in that if our markets did well, it didn't matter what other countries were doing," says Wayne Copelin, founder and president of Copelin Financial Advisors. "That has changed. Today, if you get a meltdown in Europe, that directly and indirectly impacts us."

"We've seen more than any other time, how political decisions impact our capital markets," says Copelin. "Political decisions indirectly impact the economy and the economy drives the stock market. All political uncertainty and many political decisions have taken a huge toll on our capital markets."

Political gridlock led to the nation's credit downgrade. "A lot of stocks are way undervalued based on fundamentals," Copelin notes. "They are good buys, but the markets are not going up because people believe there is too much overhang out there."

With the economy stuck where it is, there's no margin for missteps. You have to mind your pennies -- whether it's switching banks for better fees or dumping mutual funds with high fees for a no-load fund. That's especially true when it comes to funds that do little more than mirror an index like the S&P 500.

Pay attention to changes. For example, some medications are getting cheaper. In 2011, big name drugs like Lipitor, Zyprexa and Protonis all went off patent. "On average, a 'preferred generic' drug costs a senior about $4 a month, while a 'non-preferred' branded drug averages $91," says Ross Blair, president and CEO of www.PlanPrescriber.com. "Seniors who didn't pay attention and switch to newly available generics threw money away in 2011, and could do so again in 2012."

If nothing else, 2011 was a case study in how financial markets have a way of confounding popular sentiment, the expectations of the investing public, and expert predictions alike, says Paul Winter, president of Five Seasons Financial Planning.

In a year marked by government gridlock over our dire fiscal situation and punctuated by a debt rating downgrade, U.S. Treasuries have remained one of the best-performing asset classes, he says.

Last winter, we heard a host of high-profile, gloom-and-doom prophecies (including Meredith Whitney on 60 Minutes) about mass defaults by city and state debt issuers. Instead, municipal bonds have generated very respectable returns.

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