March 13th, 2009 — Investing
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:
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.
March 7th, 2009 — Economic crisis, Investing, Mutual Funds, Retirement, Savings, stocks
I am just about ready to go on a crusade against Carmen Wong Ulrich of CNBC’s On The Money. Her show last night was criminal in the bad advice it shoveled out to listeners. I am not going to link there because you SHOULD NOT WATCH THIS SHOW (that is if you can tolerate her nails-on-blackboard voice for more than ten minutes). If you have been listening to her since September, she has NEVER told her viewers how to be defensive in this market.
It’s truly hilarious, if it weren’t so sad: She starts out saying “We’ve lost 20% this year, and a decade’s worth of gains.” So what’s their advice? Keep putting money into the market!!
If you have stock mutual funds in your investment account and have been listening to her since September and taken her advice to stay in the market and continue to invest, YOUR 401(K) IS DOWN AN ADDITIONAL 25% OR MORE. I already have a problem with investing in 401(K) products, they are not designed for people who don’t know what they are doing, and can be very dangerous – as so many are unfortunately finding out right now.
If you had done the OPPOSITE of what she said, and got your money out of stock mutual funds, and instead put your money into “conservative” investments – government bonds for example – you would be up anywhere from 1% to 5%. You would effectively be up 30% because YOU DIDN’T LOSE that 25% and in fact MADE money!
Which position would you rather be in? Why are you listening to this person?
Remember – she works for CNBC. This is the channel that continually trumpets the market bottoms; ask “when is the market going to turn”; trying to convince people that it’s a “good time to buy” and the market is “on sale”. Jon Stewart put it perfectly. You should really really watch that video. Then shut off the tee vee.
Her show’s “experts” talked about long term investing, putting aside what can wait for long term gains, and saving what you need short term. They describe how to take into stride the bear and bull markets. Except for one thing: This is far different than typical swings in the marketplace. This is not just a “bear” market. This is a RECESSION, and it could become a DEPRESSION. None of these so-called “advisors” are telling you how to invest in a depression… because they don’t know!
If you listen to Wong Ulrich, and follow her advice, you are selling out your investments to the professionals. When the market goes down, someone has to buy when someone sells. When professionals sell, can you guess who is still buying at these prices? And who is continuing to buy on the way down? That’s right, it’s YOU – you are financing the exodus from the market by the professionals.
If you are trying to figure out what to do with the mutual funds in your 401(K), if you are watching your investment account shrivel up and die, Wong Ulrich is a PERFECT example of what is wrong with the talking heads on television who supposedly are “helping” you figure out whether to get out of mutual funds.
I wish I could contact the poor souls who called in to her show yesterday. There were two in particular: J who is only 29 and S who is 44. I hope to God they did NOT take her advice (and WHY the hell are they calling her in the first place to learn what to do!!????).
J at 29 had moved his money into a conservative account until things get better. He is taking the 3% he can get there, and waiting for the market to get better. The “expert” she had on her show, “K.T.”, another advice catastrophe, told J that “You’re too young to be in a guaranteed account” – What the hell does that mean? That he should lose money because he’s “young”? That he can’t move his money in a year when the market looks up? That he needs to lose even more money so he can be there when it starts to move up?
I’ll ask again what I ALWAYS ask – Why should you lose more money, for another year? Two? Three? Why not SAVE what you have now? There is this amazing buy-and-hold myth that the investments in your 401(K) shouldn’t be touched. Why? If that were the case, they would prevent people from ever reallocating. But you can make changes for a reason – to save your money!
J had it right: He has reallocated his investment into something that is making money! I hope he IGNORES HER ADVICE, and the advice of her fellow idiot, K.T.
K.T. should be thrown in jail as a danger to anyone trying to save what tattered investment accounts they still have left. His firm is touted by Barron’s Magazine. So. What. Listen to the “advice” he gives to J: “OK, so you’re losing money but do you want security today, or security tomorrow?” What he’s telling this poor guy to accept is NO security today, and LESS security tomorrow! That’s his professional advice!! These people should be kicked off tee vee as dangers to the public! He says: “The last day of the bear market is the first day of the bull market.” Pithy, but what the hell does it mean? Good thing he has little pithy things to say as you continue to lose your hard earned money. Carmen responds: ” And you want to be there when it turns!” Well what would stop you from moving your money into the stock market when it truly has turned? Nothing, actually, other than feeling confident that it’s time to move into stocks – and not still uncertain because you’ve been burned by talking heads who know nothing about how you should really invest, choosing instead to spout “conventional” – meaning wrong – advice.
How about security today AND security tomorrow? How about protecting your investments, your hard work, your sacrifice?
Funny, Wong never asks her guest, “How much cash is YOUR company holding right now? What percentage of your accounts are in LONG stocks? and what are your 12-month and YTD returns?” Hmmm??
This rant is WAY longer than one post. Stay tuned to hear the dangerous advice she gave S, a 44 year old man who’s lost 40% of his account already…
And I’ll explain what options you have, to help you keep your money safe. Sort of.
Update: Due to pressure from the guest on the show, we’ve changed his initials. The advice still stinks. Read this post about Self-Directed Discount Brokers, and click the link to Why I Fired My Broker from the Washington Post. Remember – just because we are in another bubble, does not mean this advice is sound, solid, and reliable for the long term. We are still off 20-30% from the highs of 2007. Many other experts believe we are in another bubble that is going to burst eventually. Use your judgment. Learn exactly WHY the stock market is up since March (i.e., the banks have been infused with your tax dollars, the S&P is overweight with financials, etc.). Learn, and determine for yourself whether this is sustainable, and where your money is safest – don’t rely on “conventional wisdom” and “buy and hold”, including the posts on this site. Don’t throw away a percentage of your return potential by spending it on “experts”, paying fees and charges that are unnecessary. Do your own trading in a self-directed account, otherwise don’t expect to win in the markets, they are stacked against the small so-called “investor” who doesn’t want to know anything about the market but expects to be rich in 20 years. Too many people have already learned the hard way that this doesn’t work – don’t be one of them.
February 27th, 2009 — Bonds, Cash, Economic crisis, ETFs, Investing, Money market, Mutual Funds, Retirement, stocks
Since I’m not a financial advisor, you can take or leave what I’m about to say. But my answer since February of last year to the questions of friends and family, “Should I get out of mutual funds?” has been a huge YES! (If they had done so, they could have kept their losses under 5%… or even made money!) Now, lots of people are thinking of getting out of mutual funds in bad times – and that’s not a bad idea. But keep in mind we are talking about stock mutual funds – funds that invest in stock indices, or other combinations of stocks. There are other options for investing in mutual funds where your money is in cash or bonds, read on for more.
Here are just some of the problem with mutual funds:
1. You have no control over what they pick to invest in. All those 401(K)s in the S&P 500 Index Funds? Well, how many people who socked their retirement money into these every paycheck realized how heavily weighted they are toward financials? Yeah, that’s what I thought.
2. Many of the investment options you’re presented with in a 401(K) invest in the same types/sizes of companies. everyone touted the S&P 500 Index as a great way to diversify – but a huge portion of that index was in financials. As so many have found out too late. You have to drill down into each fund, and see what they invest in, and you’ll find in many cases, what you’re offered is a menu with different dishes made of the same ingredients.
3. The funds recommended to you are mainly made up of stocks. Your 401(K) advisors have acted like they are “protecting” you by not letting you invest in commodities like oil or gold, or a wider variety of bonds, or other vehicles like ETFs (on which they wouldn’t make any money). They are “helping” you when they advise bond investments or inflation-indexed funds only as you near retirement. The lie for decades now has been that you didn’t have to learn anything, just keep putting the money away, they made it “easy” for you. Now you’re learning the hard way that NO ONE know what they are doing, and that if you invest in the market you MUST be educated about it, or you stand to lose. And Lose.
4. Mutual funds make money on fees. Unlike ETFs, which are baskets of stocks that rarely change, mutual funds can change their holdings frequently, causing fees to eat up a lot of your investment. It depends on the fund company, however the percentage losses you’re suffering may not include the fees your principal is also paying.
I’ve been listening to the talking heads on tee vee telling people since last October, saying “Don’t get out now you will only lock in your losses.”
Uh, they never explain what the heck that means. You only “lock in losses” if you don’t move the money to something that is earning a return. Keeping your money in a losing investment will for sure lock in losses, and even make them bigger. The whole buy-and-hold mentality, don’t sell no matter what, keep dollar cost averaging – DOES NOT WORK IN A DEPRESSION, in a market that is going down and staying down for years at a time.
Example: Your portfolio is down 40%. You move 2/3 of it to a cash vehicle that is paying you 3%. The stock market contiunes down another 10%. Which one has truly “locked in” the losses? You are technically up 13% over where you could have been! When the market starts to rise again, you move from the cash vehicle to take advantage of rising prices. Where is the “lock”? Ridiculous. Get out of stock mutual funds and into cash. It can’t hurt.
So what do you do? Bonds? Cash? And what is a “cash vehicle”?
First off, mutual funds can purchase stocks or cash or debt in the form of bonds. You have to learn what the funds are investing in before you purchase shares. If your money is in a retirement account, taking money out of one kind of mutual fund to move it to another is totally permitted within your 401(K). We’re talking about moving the money inside your 401(K) from say stock mutual funds to bond mutual funds – not taking money out of your 401(K) altogether. All you would do is change your allocation of invested funds from stock funds into something safer and less volatile.
For example, you can usually put your money in cash by moving your 401(K) investments into a money market fund, or an inflation-indexed fund (which are usually government Treasury notes or bonds); usually you’ll have some option to invest in cash. You may also have some bond funds to choose from, corporate bonds or government bonds.
As for bonds, however, even they can be troublesome, since they are only as good as the corporation backing them. For government backed bonds, the Treasury repays those, so you would at least be in as good of shape as the Chinese.
Some Treasury bonds are inflation indexed, and funds investing in those can also be a good way to protect your money – these bonds change in value as the rate follows the inflation rate – which, I would guess in about 5 years, might not be a bad place to have some cash.
Just remember, that getting out of mutual funds in bad times does not mean you can’t invest in your retirement account. You DON’T have to take the money out of your 401(K)! In fact, if you did that, you would be hit with penalties. But you CAN move your holdings into something besides stock mutual funds. Don’t let them scare you by saying “Well you’re trying to time the market!” Your response: HELL YES I AM! You can always put your money back into stock funds when the time is right. My guess is, that would be a few years off, so why lose money today?
This lack of control over your funds is one of the reasons so many people believe that the 401(K) is not all it’s been cracked up to be. So, if you get a match from your employer, then invest an amount sufficient to get that company extra. But beyond the match amount, open a self-directed IRA, or a ROTH, or start a business and sock all the money you can into a SEP-IRA for business owners or other self-employed retirement vehicle. That way, you and you alone can decide where to put your money.
Then start learning. You must, if you want to recoup anything before you retire. The days when you could just send the investment company a check and believe it was all taken care are gone, hopefully for good. If you don’t like that, you really should get out of mutual funds - there are always CDs, or, of course, the mattress. Getting out of mutual funds in bad times leaves you with something left when the good times come back.
November 17th, 2008 — Budgeting, Cash, Economic crisis, Investing, Retirement, Savings
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.
October 14th, 2008 — Cash, Economic crisis, Investing, Retirement, Savings
What to make of short term market swings? Don’t let them fool you:
US To Face Poor Economy for 10-15 Years: Robertson
Companies can only prosper when there are customers, and if customers have no cash and their credit is taken away, they can’t buy. Where do corporate profits and growth come from if there are no buyers? (Other than the illusory “productivity increases” – which does not equal “profitability”.)
A friend asked me yesterday what to do: In her retirement account, she’s lost all of her gains over the past 5 years plus lost 15% of her principal (not including fees). She asked, should she sell all her funds and invest only in money market funds?
My question to her: Do you really think the market will perform well enough in the next 2-3 years to not only “win” your 15% back but earn more for you? Do you want to learn enough about stocks and investing to take control of your own money to make that happen, and not to just take your broker’s word about “asset allocation” and what to do with your investment? (It didn’t help that her accounts are with a big-name brokerage making ridiculous fees for buying 6 funds that essentially trade all the same stocks…)
Both of her answers were no. Given that, she decided.
She is selling her funds, and putting them into money market accounts for now, until she can learn more about buying bonds and CDs inside her retirement account, or, until it looks like the market is actually rebounding somehow. She HATES the market, HATES stocks. Not everyone should be in mutual funds in their 401(K). The myths of defined benefit plans is hurting a lot of people. She got in because people told her that “historically the stock market returns 11%” or pick your favorite number. That historical number has NOTHING to do with what anyone can or will earn. It was never a sure thing, as so many are finding out right now.
Remember: I know nothing about investing, I’m not a professional, and have no idea what anyone should do with their money. Ever.
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