If you’ve been watching the market at all, you have probably been trying to decide whether to stay in or get into cash investments. The economy is still lagging, employment numbers falling, home prices dragging… it’s hard to figure out whether it’s even worth investing money in this situation.

Lately, many investors are moving into cash or things like gold, that do better in bad markets.  Keeping cash on the sidelines, in addition to some stronger investments as part of your portfolio, may be a good idea.  If you are not an experienced investor, who knows how to make money in down or level markets, you could get royally screwed by keeping money in index mutual funds for example.  The old saw about keeping money forever in a “good growth mutual fund” is a lot of hoo hah in markets like this, because the fact is these types of mutual funds have barely performed over 5% in the past 10 year period.

With so much uncertainty, if you are depending on a job for your income, you  might consider paying off debt instead of putting money in an investment account where you may or may not get 4% returns.  You could also lose your shirt.  Small investors are not the ones who will do well in this type of environment.  Many Americans are just paying off debt and saving their money, to make up for not being able to get credit, not getting raises at work, or getting their wages cut or even getting laid off.  Investing in this type of market is not always the best way to go.

If you really have extra cash you can afford to lose, it might be a good idea to look at the types of things that do well in an economy where people are not spending on big items, but have to purchase certain things like fuel, heat, and food.  International investments may also be useful to look at, since many retailers now are seeing no growth in the U.S., but finding their growth is coming from sales in Asia.

It’s worth taking a look at the variety of investments out there that could do well in a continued downturn, however keeping cash handy and getting out of debt continue to be priorities before earning low returns in a volatile market.

We all hear about how important it is to invest, and this includes individuals and families who don’t have a lot of extra cash on hand, but understand the importance of why you should “pay yourself first” by putting money aside. It’s important to know that even if you only have $25 to invest, or as little as $5, you can begin to secure your financial future by saving, investing, and laying the foundation for future wealth.

When investment banks throw around numbers in the millions, billions and trillions, it can make a small investor feel like there’s no point to putting aside just a little extra money each paycheck. It seems futile when the money you want to invest can barely buy one share of stock, with the commissions being extra! With a small amount like $5 or $10 to invest, it’s hard to see how that will add up to any real money in the near future. Yet even if you can’t buy stocks, that’s really not the right way to look at the matter. Instead, it’s the simple act of making sure that at least some money from each paycheck gets put aside for yourself, instead of given to a retailer trying to separate you from your earnings. When you begin the habit of putting something into your savings or investment account each month, no matter how little it is you will begin to see the balance grow.

It’s true that the interest rates today are truly pitiful, under 1%, which does not give anyone an incentive to set money aside in a savings account. But instead consider that the purpose of saving is to begin to make the habit of saving important in your life.

When the interest rates on savings accounts are virtually non-existent, so low they aren’t worth even mentioning, it can send the small investor looking for other ideas, other ways to make even that small amount of money work for them. And believe it or not, there are plenty of other options for investing with small amounts of money. But for now, keep that savings account open, or start one like and online savings account, where you can stash money any time you have it. Later as your balance builds, you will move it into other investment vehicles that will earn you more. At least until interest rates go higher, use a savings account as a place to make it easy to save up extra cash.

The first rule of thumb is that you should strive to save ten percent of your income as savings. Start a rainy day fund, an emergency fund, or whatever you want to call it, but saving like this would be used mainly to make sure you are able to pay for an emergency when it comes along, like a car repair, hospital bill or job loss. Ten percent might sound like a lot, and even be beyond what you can afford. But think of it as a goal, and save whatever you can. Putting $10 aside twice a month when you get paid is just fine.

So where do you invest $5 or $10, or other small amounts? The first place to start, is that savings account and an emergency fund. Work toward having a balance of $500 or $1000 in that account before you do anything else. Along with your savings form your paycheck, you can also have a garage sale or pick up a second part time job to fund that balance. Try selling items on eBay or Craigslist to get fast cash.

Once you have some emergency cash set aside, the best thing you can do is pay down high interest rate credit card balances. It just does not make sense to pay 18% to 29% interest on a credit card balance every month, as you try to find out where to earn 2-3% on a savings account! Your money is not working for you that way. By paying off your high-interest card, that’s like earning 18% on your “investment” right there! There is absolutely nowhere else you can go to invest $25 and earn an interest rate of 18-29%! That is just a fact. So any small amount you save up, add it to your high interest rate loans. Simply make the payment for five or ten dollars more than the minimum. Ideally, you will want to make the largest payment you can afford, to pay off balances more quickly.

If you don’t have much in the way of expensive credit card debt, then you have some interesting investing options. First, you can always invest in good old United States savings bonds. You can buy EE bonds, which most people are familiar with, which you buy for half the face value, it pays a fixed rate of interest, and the bond matures in twenty years, reaching the full face value. You can also buy these at face value online, with TreasuryDirect.gov. This is convenient because you can open an account and have money transferred from your savings account right to your Treasury investing account. There is also the newer I-bond, which pays a variable interest rate based on the rate of inflation. It’s a little different in that you pay the face value, a minimum of $25, and the interest will to accrue until you cash it in, there is no maturity date after which no additional interest accrues. There is a penalty however for cashing in either of these types of bonds during the first five years you own them.

Beyond savings bonds, what other options do you have? You can buy certificates of deposit (CDs) which give you a slightly higher rate of interest above that of a savings account – but not by much. today, many online savings accounts also offer purchase of CDs, for example ING Direct. You can buy a CD with as little as $100. This means you can’t really get at the money to spend it, which might be a good idea for some folks! While the interest rates aren’t great right now, at least you will have a way to earn and save until you decide on other vehicles for investment.

For another idea, you actually can buy stocks through some accounts with small amounts. Today there are accounts that let you invest in stocks with very little money. Sharebuilder is a service run by ING Bank that allows you to purchase stocks, with a $4 commission. The beauty of this however is that you can buy what’s known as “fractional” shares. That means you can buy a portion of a share, where most brokers would required you to buy at least one share. For example, if shares of Apple stock are $250, but you only have $25 to invest, you can purchase just $25 worth from Sharebuilder. Your purchases are scheduled throughout the month according to their buying schedule, so you can’t buy immediately, but you have the opportunity to participate in buying stocks, ETFs and mutual funds through this account. While we wouldn’t recommend that you pay $4 commission for a $25 investment – a 20% fee – at least you have the option to do so. You can also deposit your money into your Sharebuilder account, and wait until you build up a certain balance before buying. you can invest each paycheck as well. Along with regular investment accounts, they also offer IRA retirement accounts, custodial accounts for minors, and even 401(K) account for business owners. It’s a great way to invest your money.

With all of the above ideas, you now have no excuse not to get started saving money, even if you only have $5 to invest. There are many places where you can invest with small amounts. Now you know where to invest $5, where to invest $25, or even where to invest $500 or more. Get started and pay yourself first today.

So since March, the stock market has been going up. I haven’t heard anyone on tee vee, except for one or two who are quickly dismissed, explain why. Instead we hear about all the amazing earnings surprises, returns to profitability… a bunch of crap.

Companies are showing “profit” because:

(1) They fired a few million people, reducing expenses.
(2) They CUT INVENTORY, and so spent less.
(3) Their income is coming from sales overseas, but not here.
(4) They froze or reduced salaries, benefits, etc. for the workers they have left.
(5) And plenty of other bookkeeping tricks to show “profit”, “growth” and “productivity”.

Goldman, JP Morgan, etc. etc., they are hugely profitable because why? Because unlike us average Americans, they have been getting interest free loans from the government. We are not talking about TARP here, but the loans available through FDIC, the Federal Reserve and other agencies, in the trillions of dollars. And our money has been used by Treasury to buy the bad assets off their books at inflated prices, prices no other Wall Street firm would ever pay. So, of course the S&P is up, since it is weighted with financial stocks.

If a firm has billions of free money to invest, and you invest it in the market for your own account, and you don’t lend any to anyone else, and you drive the market with your volume – what do you think happens? The firm makes money of course. It’s a pyramid scheme to rival Bernie Madoff.

And how many people still working are still putting money into their 401K accounts? And how many pension funds are still putting money in? The price of stocks will go up as long as someone buys these instruments, regardless of their value. That the index is higher, does not mean there is value there, the “value” is illusory.

Don’t be fooled. Nothing has changed. There is little or no money being lent, because the TARP money has been used to shore up the capital requirements of the companies that got the money. They were virtually bankrupt. They used taxpayer funded loans to make it look like they were profitable. As one talking head said this week, if today we were to try to strengthen our banking system by increasing capital requirements we would bankrupt these “too big to fail” banks.

Basically, the Government is doing nothing for the average American but borrowing our children’s meager finances. We are going into more and more debt. China and Japan are going to resist our habit eventually. There is no reason a crash like last fall can’t happen again tomorrow – there are zero safety nets in place other than the Fed’s willingness to print as much money as they can as fast as they can.

And how can any company be profitable if they aren’t selling anything? If we don’t have jobs, and are under a ton or debt, and aren’t buying as much crap as we did when we re-fi’d our houses to buy bigger plasma tee vees, where are all these amazing profits supposed to come from next year and the year after that? Our “growth” was based on credit. Well there ain’t no more credit now, so now what? No one who is telling you things are getting better can explain that one.

What can you do? Where do you invest in 2010, or for your long term future? You can’t just put money into an account today, and leave it for teh “long term”. You need to stay on top of what you are invested in, where that market is headed, and be ready to switch as the markets do. Learn to invest money and build your plan accordingly. Don’t count on stable markets, because for now, there is no such animal. There really never was, that was a story made up for the non-investor middle class…

Based on what I hear from economists who are HONEST about what’s going on, investments that might look good right now are some foreign currencies, some muni bonds, Asian stocks, and shorting the dollar. Keeping an eye on oil prices too. You can’t “buy and hold” or you will get burned. (Six months up does not mean you’re in the clear.) Instead, PAY ATTENTION. Learn for yourself about investing and what works for YOU, don’t spend time listening to bullshit con artists on cable tee vee. Read books, listen to alternative opinions. Make your own informed decisions. If you don’t want to do the work, you shouldn’t be in the market.

Here are just a few questions you won’t see asked or answered on the so-called money shows on television:

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.