OK I’ve ranted quite a bit about getting out of mutual funds, and moving your 40(K) into cash. Now that we’re seeing a little upturn in the market, are you missing the big change in the market?
I doubt it. This blog is about saving cash – how to protect the money you have, save money when you can, and make money to keep building your wealth safely. So, if safety and wealth is what you’re after, jumping back in to a recessionary market after just a couple up days is really risky. Let’s look at the big picture here:
1. Although we’ve been fueling the economy with our buying for the past 10-30 years, Americans right now don’t have any more money, that is, we’re not getting any raises, we’re losing our jobs, we’re spending too much on healthcare and very other expense, and
2. We don’t know when we’ll have a lot of income in the future, it’s gonna take us years to pay off all our debt, (I don’t see anyone getting a 10%, 20% pay raise next year, do you?) and
3. We can’t get more credit even if we wanted to, and
3. We SURE don’t want any more debt, because that’s what got us in this mess, and that’s OK anyway,
SO…
4. How can you have “growth” stocks, or “value” stocks, when what makes them grow and be valuable is SALES? Who’s going to buy, to increase the profits from to make the market move up again?
So, when someone tells you to “buy a growth stock mutual fund”, you hopefully will understand that there isn’t going to be much “growth” until Americans are making more money from their jobs. Assuming they have one. You might want to consider learning how to buy stocks for beginners.
The fact is, it has been consumer debt that has been driving both the US economy and the entire global economy for many years, and now we just can’t afford it any more. How could it be anything other than a long time before the market comes back? You won’t find the answer to that on Carmen Wong, or
SquawkBox, or Mad Money.
Some things always will be needed, of course. For example: health care, which should get a big boost from the baby boomers’ aging and the stimulus; food; discount and warehouse stores like Wal-Mart or Target or Costco; some clothing maybe. Auto parts, but not autos. If you want to invest, you need to look around and think about what’s really needed, and what’s discretionary. But you aren’t going to find many mutual funds that give you that kind of choice.
There’s always the possibility that after we pay down our debt, and save some money, and have the cash for the big purchase we’ve been waiting for, then we might buy. Want to venture a guess how long that might take, for people to want to start buying again? When we see how nice it is though to have lots of money in our money market or mutual fund, and start seeing those four and five-digit numbers, it feels pretty good after years of not knowing how we were going to pay all our bills every month.
Paying down debt is not always a good idea either. For example, as I’ve said elsewhere here on the blog, if you spend all your extra cash paying down debt, but don’t have a decent sized emergency fund, what will you do for money if you lose your job? In this environment, it’s probably a good idea to pay the minimums on your bills, and put as much extra money as yo can into a money market or high interest online savings account. You won’t get a heck of a lot – maybe 2%- 3% – but it’s better than losing money for sure. You can put every extra dime into an emergency account, and then when things get better start using part of it to pay off your debt.
Some advisers like Dave Ramsey suggest getting a second or third (!) job to pay off debts. (Just ignore Dave Ramsey investing advice, he always recommends something that today does not exist: a “good growth stock mutual fund” - see above!) Not a bad idea to make more money. Your second job can fund your emergency savings just as easily. If you have trouble working outside the home, due to children or other issues, there are plenty of ways to make money online, using your computer, real ways to bring in some extra cash, even doing something like eBay online selling. For example, here are just a couple ideas I know of that are legitimate work at home business ideas, and can help bring in a little extra money, even if it’s only a couple hundred a month, that’s a car payment, or a grocery trip. So, if you want to make some extra cash, try these:
ProjectPayDay – this is a real way to make money from home.
Today.com – easy enough to blog, and make some money, probably not get rich but extra cash can’t hurt!
BigCrumbs.com – you can save money when you buy, and if you get friends to sign up, you get even more savings. My extended family loves this one!
I’ll post a lot more about ways to make extra money, but for now – consider where you want to be in six months, or a year. Protect what you have now, by moving your money somewhere safe (unless you like taking a lot of risk). Then, cut your spending, save the extra, and start adding to it. Soon your emergency fund will look a lot healthier, and when the economy turns up, you’ll be ready to climb aboard.
