Not only that – but the idea is, these investments will spur the kind of re-growth that builds our economy back up, but without the war and bloodshed. What exactly are our options here?

First – the green economy – green tech, green jobs – anything and everything green. Like it or not, industry new and old will have to be green. Believe in global warming or not, there is nothing wrong with making the world a cleaner place. In fact, it will make many, many people rich. And hopefully provide a planet on which to enjoy this new wealth. Will you be in on it, is the question?

Many people argue that green investment and things like cap and trade is in reality a tax on consumers of electricity. But that misses some major points. For example, we do not account for the “externals”, that is, we are not paying for the destruction we commit when we burn coal and create other greenhouse gases. We must begin to pay, because we can’t ignore the cost any longer. But also, with new green technology, the need to use dirty fuel will begin to lessen, so your costs as a consumer can go down thorugh conservation and adopting green alternatives. You won’t pay a consumption tax on something you don’t consume!

And keep in mind – the horse and buggy industry collapsed when cars came along. The mass transit revolution was trashed by government pushing cars and roads. So, here we are in another phase, where newer, better technologies are going to push out old dirty ones, and some companies will take a hit. But not for long, as alternatives come in like gangbusters into the marketplace.

Next there’s health care. Through technology there are major cost reductions to be had. The money is already flowing as part of the stimulus package.

A third investment the government is making is the auto industry. While it’s pretty volatile now, there’s a big committment to making sure we don’t lose all three automakers. which one or ones are left standing will grow into the future. (Could the Feds be unwiling to let GM go due to the release of the Volt next year? That works both for a green play and an auto play..)

Fourth, infrastructure and “shovel ready” future investments. A lot of increase has probably been built into companies short term already, but considering that there are a lot of bridges to be recuilt and schools and roads and so on, related industries re worth a look.

Ask yourself: What companies are on that bandwagon? What ETFs? What mutual funds? Look to invest in these in your 401(K), or start a self-directed IRA if you can’t invest in them through your workplace. Keep your eyes and ears open. Learn about the varity of investemtns out there. Don’t just save, but also conserve, put themoney aside into investments that make sense ina depression scenario. Don’t be a victim of it, ride the wave instead.

The biggest question I’m asked by friends and folks who know me and my track record is, when is it good to get back into mutual funds, or should I be in mutual funds or cash? There’s a big misconception here that has to be cleared up first, and that has to do with what is a mutual fund, and how do mutual funds work.

A mutual fund is a specifically designated account, in which investors invest money, allowing the fund manager to select different stocks or bonds to invest in for the investors. There is usually some kind of guideline as to the objective of the fund – such as, growth or income or both. It’s set up so that the dividends are split among the investors, as are the costs, and as an investor in a mutual fund, you are also an owner in the underlying investments.

Mutual funds became big because many people wanted to diversify without buying individual stocks, or just didn’t want to learn to invest in stocks. Retirement funds, 401(K)s and others, also made mutual funds more attractive, because employers could just give employees a list of mutual funds and employees didn’t have to learn anything about investing in the market (or at least that was the theory). You just buy mutual funds and hold forever until you’re rich – simple! Well, not so simple.

Without really knowing what was in the underlying mutual funds, and just blindly buying whatever color you were told to on the “allocation recommendation” chart from your employer’s fund manager, you kind of got screwed. As for other investors, they put money into mutual funds as though they were individual stocks, again, without knowing what was in the underlying fund.

A mutual fund, by the way, can hold bonds, or cash, or stocks. By getting out of mutual funds, you aren’t necessarily doing yourself a favor. There might be some mutual funds – like government bond funds – that have actually held up OK, better than a savings or money market option perhaps. So, you need to understand what is a mutual fund, and then choose accordingly.

Now, that said, you get BS from people like Dave Ramsey, or Carmen Wong Ulrich on CNN, who continue to tell the lie about 12% or 14% returns on “good growth stock mutual funds”. HELLO PEOPLE – if you’re looking for annual averages like those, they don’t exist any more, if they ever did! (Note the dates they cite from – usually something like “if you invested from 1984 to present” or “since the Great Depression” – completely unrelated to YOUR investment timeline…) This kind of poor advice makes only one person profit -the broker! They don’t want you to take your money out of the fee-generating funds, but the people getting screwed here are the ones listening to myths about “locking in losses” or “missing the upturn”. Ignore them. Learn to invest. Look at your balances and tell me if their advice is any good?

Or, just take a look at your favorite fund company’s prospectus for any given fund. Show me one that has earned 12% for the past ten years, or even since inception. Good luck with that. In fact, stock funds are down where they were ten years ago. It’s time to learn about mutual funds and not just blindly listen to someone who has no idea what they’re talking about when it comes to investing.

So, knowing all of that, what do you do? It’s hard to reinvest in index funds, because for example, the S&P is heavily weighted with volatile financial stocks. But you can’t really pick and choose stocks if you want to, or if you have to put your money in mutual funds as in a retirement account. Until you leave or lose your job and roll over into a self directed brokerage account – we recommend TradeKing.

You can also open self-directed Roth IRA accounts, Traditional IRAs and other accounts to take investing matters into your own hands. And while the indices have been climbing slowly back the past month, professionals in the markets are suggesting that this is a temporary bull market, that the underlying fundamentals – consumer spending, credit markets, etc. – are just not there to sustain high numbers going forward. Probably better to wait or start small for now.

The best thing you can do is to test the waters with some of your money – put a small percentage back in, and average up, as the market climbs put a little in again at a time. But pay attention, and don’t worry about small bumps down, but DO keep your eyes and ears open to see what the market’s doing, and know what your fallback is, whether it’s government bond funds or cash. It is not a bad idea to sit and wait for sustained upturns int he market, if mutual fund investing – as opposed to buying stocks, options and shorts – is your only choice right now. (PS – we recommend that if you get it on your cable channel, watch Bloomberg TV instead of CNBC or CNN. Less BS, more facts.)

The days of just parking your cash in an index mutual fund and waiting for 20 years are long gone.  It might be helpful to talk a little bit about setting up some self directed accounts, including a self directed IRA, what that means and why you shouldn’t be afraid to buy individual stocks, as well as options and other types of investments.

When you invest in a mutual fund, you are giving all the control and authority to the fund manager to pick and choose stocks, to buy and sell as they see fit. (If you’re investing in a 401(K), you are giving all the control to your plan administrator – you can’t pick and choose among ALL mutual funds, only among those they decide are good for you.) You have to trust that fund manager to make choices you agree with. You have to trust that they understand what’s going on in the market.

However as so many experts are fond of noting, the large majority of fund managers failed to beat the stock indices, like the S&P 500 Index. So, lots of people started parking their money into index funds. For a while there, they paralleled the stock markets, and did as well as the indices did, which wasn’t bad – until the markets crashed, and kept crashing. And so did all the index funds.

How can an average investor ever again feel confident or secure enough to get back into the markets? If you still think it should be as easy as just sending in your check, then you are better off putting your money in a cash savings account or under the mattress. To avoid losing, you need to learn something about investing.

Here’s just one solution. First, you need to learn to invest money. No matter how expert you are, or how many years you’ve been in the market, there is always something more to learn. But abandon the idea that you can just send your check to the mutual fund every paycheck. That’s over. You need to learn more about the funds, about stocks, and about what options are out there if the markets turn down again. One good choice today is to learn about using Exchange Traded Funds (ETFs) instead of mutual funds – they trade like stocks, don’t have the same management fees and minimums to get invested, and you can buy a broad range of index funds, currencies, commodities and other investments that would otherwise be tough to get into for a new investor.

Next, you need to open an account where you can make all the decisions. If you currently have a retirement account through your employer, you should seriously consider opening up a self directed IRA as well. the reason is, many Americans can take advantage of an IRA when they don’t have access to other retirement options, or take an additional tax credit. For small business owners, there are self directed IRA plans such as a SEP-IRA that you can also open.

There are plenty of discount brokers out there. There is also a ton of websites where you can learn more about stock investing that you ever wanted to. This site recommends TradeKing as the best - fees are low, and they have awesome forums, educational materials, trading platforms and they have the Trader Netowrk allowing you to follow top traders, ask questions and much more.

When you open a self directed account, you can open a regular brokerage account, or retirement accounts (IRA) or custodial accounts (UTMA, UGMA, Coverdell) for your kids’ investing. You can also open small business owner retirement accounts like SEP-IRA. Here is where you can take control of your retirement investments, and not delegate it to someone without knowing more. You can put a little money here to work with, until you learn more and step by step take back control of your investing.

All self directed means is that you decide and make the trade yourself, usually online, without having a broker or financial advisor do it for you. Using a discount broker with a lot of educational materials is key, and also to take small steps. You can buy safe investments in your self-directed account, like CDs or bonds, but you can also buy mutual funds, or exchange traded funds (ETFs) instead of mutual funds if you choose. You can also, as you learn more and bcome more comfortable with risk, branch out into options trading to help hedge your investment risk.

There is a lot involved in learning to invest money, and do well in the markets. With a self directed account, and taking the time to learn what should you invest in right now, you can learn what you need to know to profit from the incredible opportunities that will be coming up in the future.

Here’s why it’s ridiculous to even listen to this dangerous myth:

- What if your stock goes to zero? Or the company goes bankrupt? At what point exactly should you sell? For a mutual fund, how low does it have to go before you throw in the towel?

- What if while you watch your investment lose money, you see that there are others out there that are making money? Do you not sell to avoid “locking in a loss”? You are guaranteed a loss if you don’t switch to something that’s making money!

- What if we have another market dive? What if we have zero growth for ten years – just as today’s market has wiped out all of the increases of the past ten? When do you sell in favor of something else? Like a CD?

OK let’s do the math. Investor A and Investor B each have $10,000 in a mutual fund that’s down 30% so they each now only have $7,000. All indications are that the market is still headed down. Or at least, that’s the investors’ fear.

Investor A listens to Carmen and sits there watching it lose another 20% because Investor A believed without knowing why that you shouldn’t “lock in” your loss by selling. Except that now Investor A has $5,600 in her account. (By the way: If you listened to Carmen last October, this is EXACTLY where you would be right now.) She sits there and watches her $5,000 bounce around the bottom of the market, because this is a market like nothing the tee vee people have ever seen before, and they don’t know what to do either. Eventually, the market moves up 10% after six months, but that puts her at only $5,500. She’s a long way off from gaining back her losses.

Investor B instead uses common sense, and doesn’t listen to tee vee “experts”, and sells when her account is down the first 30%, moving her $7,000 to a Ginne Mae (government) bond fund (not actual performance, only an example), earning 5% over the next 6 months, so she now has a $350 gain instead of a $1,400 loss, for a total of $7,350. She now moves $4,000 of that back into mutual funds that she feels confident are now moving up again. Investor B gets the same 10% market move that Investor A got, so she has $4,400 from her move back into mutal funds. And since she’s made 5% on the remaining $4,350 her totals are $4,400 + $4,565 for a total of $8,965 in her account, well ahead of Investor A. (She will now also keep watch on the market and know when to sell and when to buy!)

OK which person do you want to be?

No matter that the market is doing today, you DO NOT LOSE BY SELLING. This fear of selling is the one characteristic that will definitely make you a loser in the markets every time. You must understand that you will win some, you lose some, when you are smart about investing, you take your losses before they get too big, and move the money to where it will be working for you again. There is no such thing as “buy and hold for the long term”. Those days are gone. Learn what to do now, or stay away from the markets.

It’s important to learn how do  mutual funds work, if you’re not clear on the specifics. Long term (and we don’t know exactly what that means), stocks are likely to go up. Eventually. But at what rate? How long will it take? Is this downturn “different” than the last time? It all makes things very difficult for the investor that use to spend ten minutes a month sending money to their index fund in their 401(K). Yet with all the many indexes around the world, there may be some opportunities there.

For index mutual funds, the fund share price will change according to the index performance. For example, thousands of mutual funds use the S&P 500 as the base of their portfolio. But the S&P is heavily weighted with financials, so there has been a real loss for investors who chose that index fund. you’ll also find there are many differences between  funds for operating expenses and “load” fees.  Fees and commissions can compound a loss in share price.

When you’re looking at index funds, you may also consider looking at Exchange Traded Funds, or ETFs. These are really just baskets of stocks, and don’t require the same active management as do mutual funds, even index mutual funds. You can choose ETFs that include the best of certain stocks or industries, but leave out the financial companies or other industries you want to avoid. You will also find lower fees for ETFs vs. most index funds. For the long term investor who wants to put certain amounts in each month, you want to stick with low fees. but today, even with index mutual funds, you don’t want to think that you can simply choose the best mutual fund, send your money, and in ten years you’ll be rich. For example, as of today, all gains for the past ten years were wiped out with the rcent market downturn. So again, what is the “long term” time horizon you are comfortable with?

The best strategy for investing in index mutual funds is one where you review regularly, move your funds according to market conditions, and don’t expect it to be like the old days a whole 10 months ago – you will have to be more actively aware of what your money is doing to avoid losses.

To an extent, diversification of your portfolio can help, if you add bond funds, emerging markets and other different types of indexes to your mix. In this crazy market, be sure you are knowledgable about what stocks you ar invested in, even if you’re investing in an index fund. That’s the best way to avoid big losses in your index mutual fund, and enjoy long term gains.

There are many reasons for their popularity, but it could be due to historically good returns, or that they are easy to buy and sell. With the billions flowing into 401(K) accounts, mutual funds also gain the lion’s share of such investment. They also offer a way to diversify and dilute risk.

Here’s how mutual funds work:  A mutual fund takes money from investors looking to invest in stocks, bonds, or a variety of other securities. It is basically a conglomeration of multiple individual investments. As this grouping of investments gains or loses value, investors will gain or lose also. When a mutual fund pays dividends, the investor receives his or her share. Mutual funds are professionally managed, and because of the variety of investments, can help investors be diversified. Investors have been led to believe for some time that mutual funds can do a large part of the investing work for an investor.

As for the business side, a mutual fund is a company that pools money from many investors and then invests the total on behalf of the group, in compliance with a specific set of investment goals. Mutual funds raise their money by selling shares of the fund to the public, in the same way that a company sells ownership shares of stock. It is this pool of funds that the fund company will use to make various investments, using vehicles such as stocks, bonds, and money market instruments.

When a shareholder purchases a share in a fund, they receive an equity position in the fund and, by extension, a share of each of the fund’s underlying securities. Usually, shareholders may sell any or all of their shares at any time, but as with other investments, the price of a share will change daily, based on the performance of the underlying securities in the fund.

When choosing a mutual fund, you should keep in mind your personal financial plan and goals. To start, don’t just rely on features such as past mutual fund performance - these do not reflect future performance in any way as many have learned the hard way today. Instead, start by determining your financial priorities, what financial resources you have, how you consider investment diversification, your feeling about how much risk to assume, and what your time horizon is for your investment goals.

If you only look at total returns you are seeing only half the story. Mutual fund returns show past performance, but even if the returns are high, are they competitive with the market for comparable investments? And will it necessarily reflect how a fund will do in a poor market if the returns have been gained only during up years? You should do your research into the underlying investments, fees, and performance before assuming a good total return means the fund is a quality investment. be sure to compare it to other similar funds over the same period. Using research, you can find what are the top mutual funds for your investment style and goals.

As it is often said, past performance can’t predict future results. After the recent downturn in the market, it’s clear that ever-rising values have hit the wall. It’s not certain either when or if the market will return to consistent growth. So, it is becoming all the more important to understand how mutual funds work, what the underlying investments are, and how they can fit into your long term investment plan given the current market conditions.

But these percentages go out the window in a recession or depression, because you want safety no matter when you are retiring. For the past year, stock prices have plunged. The allocations are probably wrong for your particular risk appetite. And if you call your 401(K) provider or employer, as I have, they will probably tell you, “Stay invested!” or “We feel the allocations are appropriate.”
Well, they really just don’t want you to move your money!

No, you have to learn how to reallocate your stocks on your own – based on a new market, and wait until things change or get better. There is no reason to stay in losing funds when you can reallocate to wait until a change for the better.

Now if you’re thinking of putting your 401(K) into cash, you should understand that that doesn’t not mean taking your money out of your retirement account. this could incur penalties that total a large percentage of your money – so don’t add penalties to your losses.

When you invest in your 401(K) instead put it into cash vehicles. Your broker will offer at least one or two of these accounts, since their plan allows for older workers nearing retirement to move into safer investments. These are the investments you want to take advantage of for now.

For example, if your broker offers a sample portfolio balance for someone within 3-4 years of retiring, use that for the their safest vehicles. some of these might be bond funds (usually government bonds), and some will be savings or money market options.

If you don’t want to take their advice, then see what funds or accounts they do offer, and move the portion of your money you want to protect into these vehicles. this is the way to move your 401(K) into cash, not by withdrawing all of your money. Then as the market slowly gets better, start moving small percentages back to stocks, based on the performance of the stock market. This is the beast way to use cash n your 401(K).

Globally, there are thousands of different hedge funds operating. Their main goal is of course to make lots of money, and to do so by investing in a variety of different investments and investments strategies. Often the strategies used are more aggressive than than the investment strategies of standard mutual funds.

Generally, a hedge fund operates as a private investment fund. The fund’s general partner selects different investments and also manages the trading activity and everyday operations of the fund. The investors or limited partners will invest much of the money and share in the gains of the fund. The general manager often charges a small management fee and earns a large incentive-based bonus if the investments earn a high rate of return.

While this might sound like a mutual fund, there are some important differences between mutual funds and hedge funds:

1. Mutual funds are managed by mutual fund or investment companies and are quite heavily regulated by federal law. Hedge funds, since they are private funds, have (so far) fewer restrictions and regulations.

2. Mutual fund companies invest only their client’s money, but hedge funds can invest their client’s money as well as their own money in the underlying investments.

3. Hedge funds charge their clients a performance bonus, usually equal to 20% percent of the gains above a certain floor amount. This is in line with equity market returns. Some hedge funds have successfully generated annual rates returns of 50% or more, even during volatile or difficult market environments. A mutual fund return is usually not as high.

4. Mutual funds have disclosure requirements, as well as other prohibitions against investing in derivative products, such as using leverage, short selling, taking too large a position in one investment, or investing in commodities. Hedge funds however may invest client funds however they wish.

5. Hedge funds are restricted from soliciting investments, and this is why you hear very little about these funds. During the five years prior to September 2008, some of these funds have doubled, tripled, or even quadrupled in value or higher. However, it’s important to remmeber that hedge funds do incur large risks and in this difficult economy, many funds will likely disappear after losing big.

Hedge funds are just another way to protect wealth, but in a tough economic environment, it’s likely that some restrictions will be imposed in the future.

I like Dave Ramsey.  It was because of his book, Total Money Makeover, that I started using the envelope system, and actually now save some money each month.  I think he’s being proven correct right now about being debt-free – and I’m working to get there myself.

But he’s still telling people to put their money in “quality index funds” so you can earn “14% over time” – WHAT??  There is NO truth to the 14% number (actually that’s the highest I’ve ever seen – 10%, 12% is the usual number).  In this market, telling people to do this is a complete misrepresentation of what their specific, actual results may or may not be.

The simple fact is that any money put into index mutual funds 10 years ago are back where they were then.  There has been NO increase in the last ten eyars – let alone 14%!!  How many people will blindly do this based on his suggestion alone?

He is good with the “get out of debt” idea. But he should just plain stop telling people where to put their investment money.  The whole “stick it in an index fund and sit back and enjoy the winnings” method is out the window.  It never really was true, and today even less so, that this is the best way to invest.

Bottom line:  If you don’t know anything about investing, stay out of the market.  Don’t get your advice from people on tee vee.  If you want to hire somone, you better know what the heck they are talking about, or you’ll get screwed, either intentionally or accidentally.  If you don’t know and don’t want to know, then buy CDs.  Anyone who invested in a 6% CD ten years ago would right now be far far ahead of anyone who had their $$ in the market.

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