At the beginning of the downturn in mid-2008, she had some typical, conventional  things to say, you know, the old “if you’re in the market for ten more years then stay put” crap, but she’s coming around.  Now she is telling folks facing imminent retirement that they need self directed accounts and to set up 401K rollover accounts – and not leave them at the mercy of a former employer.

She also answered one caller, whose employer has stopped the match and who makes too much to contribute to a ROTH, telling her NOT to “keep putting in the max to your 401k”.  Wow – she instead said do a non-tax deductible IRA, then roll it into a ROTH each year.  Go Suze!   BTW – so many money types say only put in up to the match, then go ROTH or otherwise – Jim Cramer, now Suze.  Maybe some folks will get the message.

So what do you do? Open a self directed IRA or a 401k rollover account with a top rated discount broker.  Learn to invest money in the markets.  LEARN what works, for YOU. Don’t expect anyone to tell you the right thing to do.  Then place your own investments. Today, you can even open a Roth 401k with a discount broker.

And while I”m at it – I’m passing this article around to all of my friends.  The article, by Jeffrey Goldberg, is titled “Why I Fired My Broker” and it explains why you should too.  Read it and understand why your employer’s 401k managers and financial advisors generally are a waste of your time.

Why I Fired My Broker, by Jeffrey Goldberg

Their job is to make money for their firm.  Not protect you from downturns.  As long as their losses aren’t as great as the losses in the index funds, they consider that a “win”.

There are many ways to invest money that are safer for the long term, but you will have to learn more about investing, learn more about the markets, and not just expect to park your money in a mutual fund somewhere and let it sit.  This is not just a “down” market. This is potentially a stagnant market, with little or limited growth for years, even decades, to come.  It requires a different understanding to be successful, as opposed to just waiting out a temporary downturn in a bull market as has happened in the past.  You will have to learn the best way to invest money for yourself, and not rely solely on tee vee talking heads or even experienced financial planners to help you. Keep your $$ in a CD or high interest checking account so you have cash available when you need it.

Stay tuned here in the next few posts as I list some publications you really want to read.  These will not give you the same old buy and hold bull – they will explain why the “advice” you’ve been getting has been skewed against you from the beginning.  Start with Crash Proof, by Peter Schiff  (the new edition, Crash Proof 2.0, is coming soon!).

Bottom line:  Take advice from NO ONE. Not even us.  And read outside the lines folks.  Don’t take conventional wisdom for truth.

But of all the Rich Dad products, the one that turned my head the most was playing his game, Cash Flow 101. In this game, you attempt to gain eneough passive income to cover your expenses, all while bumping into those speed bumps of Life. You keep track on an actual financial balance sheet, and learn what it takes to get wealthy.

I learned something in playing that game, that I couldn’t have noticed in real life as it unfolds – how I approached risk, and money, and what would have to change if I wanted to make money and grow wealth. This game was a priceless lesson. It was a way to “model” behavior, just like “real” economists do, and see how different strategies and actions would pan out – without suffering the real financial losses that could occur, and building confidence in making seemingly risky decisions that actually are the path to great wealth.

If you’ve never played Cash Flow 101, it’s a real eye opener. There are also groups all around the country that get together to play periodically. Give it a shot – it’s a financial literacy education you can’t get anywhere else.

And at the very least – if you  haven’t read his books – get your hands on Rich Dad, Poor Dad, at the library even if you are short for bucks.  (I saw at Barnes & Noble a compilatoin of his first three books for under $15!)  If you read Rich Dad’s Prophecy – he called everything that is happening now, and is likely to happen, except it was years ago.  He recommends that you start a business (and a good way to get started today is with online business ideas), so that you control your future income and wealth. There are tons of great ideas to pursue in these books.

Another benefit of reading these books are to answer the difficult economic questions of today. People are asking: Should I be in stocks? Should I get out of the market? Should I buy bonds? Should I be investing in real estate? Have we hit a bottom?  Believe it or not, the Rich Dad series helps you figure out how to answer these questions – for yourself.  This is the kind of education people need to avoid being at the mercy of brokers, advisors, television “experts”, in a time of economic downturn, but also great opportunity.  Start – or enhance – your personal finance literacy with these books and games.

As a result of the financial turmoil, there are plenty of families which will be torn between putting aside money for retirement, and saving for college for their children’s college education.  Many parents now paying for private school in grades K-12 are now rethinking that decision.  As for college costs, they keep rising, and enrollment in local community colleges is skyrocketing. Yet do parents always have to pay for college?  If high school age children are encouraged to do everything they can to apply for all available grants, treating it almost like a part time job, they may find that there is cash available.  In addition, holding down a part time job or two in the summer can give teens a way to afford school.  When parents give up financial security in their old age in favor of paying tuition today, that is probably a far bigger danger than the impact on their children of having to attend a community college instead of a major private university.

There are plenty of state colleges that are priced under $20,000 per year for state residents, including tuition, fees, books, and room and board.  A part time job that pays $10-15 an hour can cover a large portion of that amount.  Community colleges are far less, especially if the student lives at home for a year or two.

Spend Less for Entertainment

Do you really have to cut back on entertainment jut because your budget is cut back?  Not really.  There are really hundreds of things you can do, for less.  One website, GoCityKids, offers lists of things to do, free and paid, for dozens of locations around the country.  Public libraries are now swamped with requests for movie rentals, music rentals, and the old-fashioned book.  Many municipal and college libraries show films to the public.  Schools, colleges and local orchestras offer free concerts.  Some communities sell discount tickets to events like theater and concerts, along with movie and museum tickets.

Are We Addicted to Debt?

1.  What if this is a depression? What if it’s not a short term bear market?  What happens to my retirement money? Where should I put my money in a depression?  Do you have any idea?  (Remember – It took them a year to call a recession – only 12 months late… but we knew it, common sense told us.)

2.  If 12-15% of Americans are out of a job (both those on unemploymnet and those who have run out of unemployment benefits and have just stopped looking), an unspecified percentage have part-time work that need full time work, and those of us with a job have no idea whether we might lose or keep the one we have, and none of us want to spend our money and we can’t get any credit, and even if we did, we probably won’t get our hand caught in that tiger trap again, tell me where will the profits come from so that big companies will make money, and start a new “bull” market?  Or even an “up” market?

3.  If you can move your money right now into an investment vehicle that will at least earn 2%, 3% or 4%, why shouldn’t I do that while I wait for the market to get better?  (Don’t just tell me not to do it, tell me WHY.  And then tell me why it’s OK to lose another 20% while I wait for the market to turn.  And if you tell me again about what the market has earned “historically”, I will kick your ass.  I am not stupid, I have a calculator…)

4.  If you lose 20% YTD in your investment account, your new lower balance wil have to return 25% to get back to square 1.  (For example:  a loss of 20% off of $5,000 leaves yo with $4,000.   But to make back $1000 on $4,000 is a jump of 25%.)  So when they tell you to wait for the market to “come back” – how far will it have to increase to just get back to where you started?

5.  What if the markets stay depressed for another ten years?  And there is no climb like we’ve seen the past 30 years?  We have already lost enough in the market to erase teh last 12 years of gains.  So, should you believe them when they tell you to take a 20 year time horizon?

6.  If you take your money out of the market, put your money in CDs or inflation adjusted bonds, or government bonds, or other more reliable vehicles, the huge Wall Street behemoth – financial advisors, mutual fund companies, television talk show hosts – they don’t make any money.  Need I say more.

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.

Even with Obama’s new plan, which might work, things don’t look so good.  Having cash set aside would be a really good thing right now.  But so many of us don’t have any cash at all, because we’ve been spending every dime and then some, till now.

It’s not too late to get on the right track though.  Here are some really, really basic ideas to get some cash, right now, to put into a savings account.  But be sure to take the savings and put it into a savings account – don’t just spend on something else.  And for God’s sake don’t invest it in anything!  You need a cushion, NOW.  Nothing shocking here – just basic reminders to DO IT NOW.  (We’ll keep adding ideas in future posts.)

Things to skip or adjust:

- Discretionary spending: Starbucks, or Dunkin for that matter, smokes, buying lunch at work, going out to dinner, vacations (do something cheaper close to home), going shopping for fun, buying junk food at the grocery store (have you see the prices jump lately?), trips to the movie theater, buying the newest cell phone, upgrading your car lease, spending too much on cable channels you don’t watch, traffic tickets, the weekly mani/pedi, home decor, fast food for dinner, clothing you don’t need, magazine subscriptions, appliances that could be fixed instead of replaced, you get the picture. Stop yourself, one day at a time. What did you NOT buy today?  Put that cash into the bank.

- Paying extra on your debt.  Yes don’t pay extra right now.  You’ll pay it down eventually! But for now, pay the minimum, and put the rest into your savings.  What if you get laid off? Would you rather have that money in your pocket, or Bank of America’s?  Will it cost you a little extra in interest? Yes. Will you have cash on hand, in the bank,  if you lose your job? Yes.

- Getting into more debt.  Just. Don’t. Do. It.  It’s how we got into this mess, it’s NOT how to get out. 

Where to find or earn more money:

- An extra job. Picking up an extra amount of cash and putting it all away is a good idea, unless you’ll have to spend $$ on child care, travel or other job-related expenses.  Check Craig’s List for local and part time jobs from home.

- Sell it on eBay and craigs list, or throw a garage sale.  Millions more listings are showing up, but there are buyers out there looking for deals too.  So get rid of that stuff NOW.

- Make a little money online.  I don’t mean scams, but if you have something you’re passionate about, you can set up a blog, for free, learn to attract readers who are just as passionate, offer excellent value and products and ideas, and earn a little extra cash.  Here’s a reasonably priced product that can help you set up a blog to earn money. Will you get rich? not likely.  Will you have a little extra to put away?  You can easily do that.

Where to put your extra cash:

- Your mattress.  Hey, some people feel better having bills within reach.

- High interest savings accounts, like ING or HSBC.  You can earn upwards of 3%, but you’ll need to open a checking account with them too to get cash through a debit card. Research rates here.

- Your local community bank. Their interest rates aren’t great, but by and large they are more stable than the big national banks.  Find out your bank’s rating at Bankrate’s Safe & Sound ratings page.

Related articles by Zemanta

• Top 5 Online Banks: Savings or Checking Accounts

What if you’ve been paying off debt by taking an extra job, putting an extra $500 a month toward that credit card – and you lose your primary job, your main income?

What would you give to have your hands on that cash you paid debt with?

With times like these, putting more away for emergencies BEFORE you pay down your balances is probably a smarter choice. When times get better, for sure pay down debt.  But if you don’t have much cash set aside, pay the minimums on your debts to stay current, and put the rest in a good high-interest savings account you can get your hands on as soon as you need it.

Image by scottwills via Flickr

I wanted to go back on something I posted a few posts ago.  You probably SHOULD keep investing in a 401(K) or other retirement plan, at least up to the company match, if you are lucky enough to get one.  The danger is in continuing to put your hard earned dollars into this market through some kind of standard index mutual fund.

My co-worker argues with me: Oh, it’s dollar cost averaging!  We’re buying on sale! It’s OK to lose, because I have a 20 year time horizon!!  What a bunch of Bull!   Why should you lose two years or more worth of increases of any kind, and actually take a loss?Then, take the next two years after that, or longer God forbid, to get back to where your balances equal just your inital investment?

Dollar cost averaging is for dupes! It’s to make you believe it’s EASY to manage your own retirement, so that your employer doesn’t have to feel guilty about not offering any kind of fixed retirement plan any more.  Meanwhile, you will LOSE 4 years of any return at all, plus principal, if you are just following the “conventional wisdom”.

Investments experts are not “dollar cost averaging”.  They are sitting on the sidelines with their cash. The are investing in short ETFs, currencies, and corporate bonds, all of which you likely have NO access to in your 401K.  Only the dupes keep “buying” stocks at these crappy levels, because they haven’t taken the time to learn something and stop their contribution from going into the same old index fund.  OF COURSE Wall Street is telling you to keep contributing, so they have someone to SELL TO.

So, put your $$ into your retirement fund, up to the company match, to keep saving, but keep it in the government bond fund or the savings account fund. What the heck, why not EARN 3% instead of LOSING 20%.  Then in 2 years when the market slowly creeps back, THEN switch your allocations.  For everything you want to save beyond your company match, set up a self-directed ROTH.  Put as much as you can in there.  And LEARN how to invest, find other vehicles that are actually making money (they are out there).  Otherwise, you’re just throwing it away.

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.

Related articles by Zemanta

• How I Paid Off $35,000 in Debt, and How You Can Too
• Crunch Time – Prepare For the Personal Credit Tsunami