Saturday, October 4, 2008


Anonymous asked:

What should we invest in, if we can afford to buy low right now?

Oh my goodness, this question is so far outside of my area of expertise, that I don't even want to talk about it... But I will, because it's important, as long as you promise to remember that I'm a business manager with a background in special education, not an investment banker, a stockbroker, or anyone else who knows anything.

The first step, I believe, for regular people like us (Hockey Moms! Hahah!) is to get good advice. Get yourself a financial advisor, ask people you know who have money for referrals. Have a meeting. (It should not cost anything. If it does, find someone else) and talk about where you're at, where you're going, and where you want to end up.

We have two financial advisors. One personal and one business. Our business guy is with Edward Jones, and he called me yesterday to assure me that EdJo hasn't invested in any of these mortgage securities, and that while our investments will have to ride the market like everyone else's, we're not going to lose everything like some people who were heavily invested in mortgage securities. Call companies like Edward Jones, or Charles Schwab (it's funny how almost all of these companies are named after old dead white guys!) and ask them how secure their investments are right now, and go from there. Google the name of the company, and make sure you don't find anything scary - like I just found about Wachovia, so I decided to take it off the list!  

We own, through EdJo, shares in several different mutual funds. A mutual fund, basically, is a bunch of different stocks all mixed up together. So, rather than owning 100 shares of IBM, we might own a little piece of IBM, and a little piece of 99 or 999 other stocks, which are traded as a group. The advantage of a mutual fund is that, generally, there is a real live person somewhere whose job it is to manage the mutual fund, and to buy or sell what he thinks will be in the best interests of the group. It's like going in on stocks with all your friends - you spread the risk out among the group. You also spread out the gains. They're more stable than having all your money (eggs) in one stock (basket) because if one goes up, another will go down and balance it out (generally), although when everything goes down, as we've seen in the last week, you're going to lose money just like everyone else.

But as I said before, it isn't real money unless you sell. It will come back up, eventually, and if you're in a position to "ride it out" (or leave your money where it's at until things come back up) you stand to make a lot more money than you would have if this had never happened.

Let's say, for instance, that last month $100 would buy 1 share of the mutual fund XXX. Now that the market's down, that same $100 might buy a share and a half, or two shares of the same mutual fund. When things come back up, because it's a cycle and things always come back up, instead of having just one share, you'll have one and a half or two. It's a good time to buy, if you can.

But first you want to pay down your debt. Interest rates are going to go up, if you're late on a single credit card payment they're going to jack up your rate. And even if you've done nothing wrong, credit lines are going to go down. We had a Visa card with the business that we rarely used, had never maxed, and had never missed a payment on, and when we got the new card in the mail last week (the old one is expiring this month) our credit line had been cut from $1500 to $800. Change is coming. So INVEST IN YOURSELF by paying down any outstanding debt you have right now. Call your lenders and ask if you can have a lower interest rate - it never hurts to ask, right? Shop around and see if you can transfer your balance to a lower-interest-rate card. Do everything you can to get your outstanding balance as close to zero as possible.

I'm reading a book right now called How to Prosper During the Coming Bad Years in the 21st Century, by Howard J. Ruff. Incidentally, it's really cheap right now at Amazon... The copyright date is April '08, so he saw this coming and had enough time to write and publish a book about it. That alone is enough to make me consider carefully any advice he might be handing out for the low, low price of $5.

He says the conditions are right, right now, to buy gold and silver. Typically gold and silver are bad investments, because it takes 20 years to make any money, but right now they're really low - just like they were in the 1970s - and they're going to come back up with everything else. Apparently Ruff bought (and recommended) gold and silver in 1975 when the prices were at $125 and $2, and he sold in the late 70s when gold was over $700 and silver was at $35. Not a bad return in less than 5 years.

I recommend that if you have any money to play with, you read as much as you can about what's going on and how to shelter yourself. I think Suze Orman is saying a lot of smart things. She's worth listening to, also.

Just as you wouldn't want to manage your health care all by yourself, without an expert (a doctor) to guide you, you do not want to manage your financial health all by yourself, without an expert (a financial advisor) to guide you. This stuff is seriously complicated, and I only understand bits and pieces - but I know where to go for help and advice, and I know how to be a good consumer of information, how to weigh and balance the advice I'm getting against my own knowledge, experience, and common sense, and that's worth more than being able to do everything all by myself.

Being a success means having a team of successful people behind you. You need good doctors, who help you manage your health. You need a good lawyer, who helps you manage all the paperwork of life (wills, etc.). You need a good accountant, who helps you manage the yearly paperwork of life (taxes). You need a good realtor, who will guide you through the process of buying a home, and make sure that you don't get a screwy mortgage or overextend yourself on your monthly payments. You need a great insurance agent, to make sure that your ass is covered if something unexpected happens. Think of your life as a business, and all of these experts are your employees, and your job is to be the manager, and to see the big picture and keep all the wheels turning smoothly in the machine that is your life.  

YOU don't need to be an expert in the stock market, or in accounting, or in medicine, but you need to have the courage to make changes in your current team, if necessary, so that you're getting the best results possible. You need to have the sense to see the big picture, and to choose people who are experts, and who you trust take care of you to the best of their ability.  Choose people with experience, foresight, and excellent recommendations from other people you trust.

In addition to mutual funds, gold, and silver, right now I wish we had the money to buy land.  As Mark Twain said, it's a good investment because "they're not making it anymore."  A couple of years ago, before the "real estate bubble" popped, land wasn't such a great investment.  But now that the market has corrected itself and the prices are more reasonable (repeat after me, everything is a cycle) it's a good time to buy land.  Not necessarily a house, but land.  The population is just going to keep growing, and all of those folks that are going to be born are going to need to live somewhere, right?  Again, talk to an expert (a realtor) if you have some money lying around, and see if there are any good investment properties near you, and what you'd need to do to acquire them.

One of the things BJ and I have planned to do, once we pay down our debt, is to buy land where we're going to build our "forever house."  The house we're in now is our practice house - and we built it with that in mind.  He's learned to hang siding, lay tile, and all sorts of good skills here.  I've learned that we need bigger closets and bathrooms, and a ton more storage.  I've also learned to paint and what my style is in decorating.  We know a lot more, now, than we did 6 years ago when we started the process of buying a house.  Anyway, our plan is to find some land, buy it, get it paid off, and then get the construction loan to build a house.  We figure that's a good way to go about things....  We'll see.  But anyway, if your plans are similar, now might be a good time to start looking for the land you want to build your "forever house" on, too.

What you should invest in, how much money you should put in risky stocks - those that have the potential to gain or lose a lot, versus how much you should put in more stable stocks, depends so much on how much you have, where you're at in life, when you're going to retire, etc. etc. that unless I went to school for 6 or 8 years, then sat down with you and really looked at everything you have in your financial picture, I couldn't tell you to buy this or buy that.  But I hope that some of this has pointed you in a good direction.

Have a good team.  That's really what it comes down to.  Have a good team that you trust, and manage it carefully.  

1 comment:

Anonymous said...

Thank you!