Tuesday, October 7, 2008

Better than a Mattress?

With Banks failing, the DOW dropping 777 points in a day and the rapidly fluctuating Dollar, the question I am hearing almost every day is where should I be investing my money?  There are some who have gone so far as to pull funds out of their banks and put cash under their proverbial mattress.

To make matters worse, you have reactionaries like CNBC analyst Jim Cramer announcing on the Today show:

Whatever you may need for the next five years, please take it out of the stock market. Right now. This week. I do not believe that you should risk those assets in the stock market.

I have compiled a few articles and comments from various sources with suggestions how to best weather this storm:

From Peter Schiff:
President of Euro Pacific Capital and author of best-selling book, "Crash Proof: How to Profit from the Coming Economic Collapse" was published in February of 2007

My advice has not changed. Keep your cash reserves in foreign currencies, right now the Japanese yen looks to be the strongest, own gold, and take advantage of some great values in high dividend paying foreign stocks, especially those that are not exposed to U.S. consumers or U.S. borrowers.

You can even make big money if you have some long-term savings in cash today that you can use to buy shares of these oversold, yet superior businesses ... and here are five simple steps to go about doing just that. We're also recommending to members of our Motley Fool Global Gains service that now is a fabulous time to increase your exposure to foreign stocks -- again, provided you have some long-term cash. Not doing so is the biggest threat to your portfolio today.

The takeaway  We're not here to tell you that the U.S. economy is all puppy dogs and daffodils. It's not. But now is not the time to allow emotion to dictate your financial decision-making process.

If you have a sound asset-allocation plan that differentiates between short-term and long-term dollars, then you should have enough cash to see you through these lean times and be able to leave your long-term money in the market. If you don't have such a plan, then now is the time to put one in place for the next inevitable downturn.

Either way, the takeaway is the same: Stay stoic with your money. The highs are never as high as they seem, and fortunately, the lows are never as low.

Investing 101: Where to Put Your Money Right Now

The continued beating being administered to the stock market is startling, and not just for day traders and institutional investors. Even if you couldn’t tell a ticker from a price target, your regular investments – including retirement accounts – are affected by the gyrations in the market.

On Monday, CNBC’s own Jim Cramer made a dramatic recommendation on the TODAY show: Pull out any money you have tied to stocks that you may need in the next five years. It’s just too dangerous right now to count on short-term gains.

So should the average investor with money tied to the market – whether it’s through a 401(k), mutual fund or other asset – take this turmoil as a sign to get out? Not so fast, says Joe Terranova, a Wall St. veteran who joined Carmen on Monday night’s show.

The most important thing the everyday investor can do, according to Terranova, is know his or her own balance sheet. He advised people to literally fill out a spreadsheet with their assets and liabilities. What do you want to hold onto? What can you afford to hold on to? What can you drop from your portfolio if you need to raise capital? Answering these basic questions will make your investment decisions easier.

But don’t just run away from the market, Terranova said. Fear is prevailing over fundamentals right now, but it won’t forever and making money decisions in the heat of the moment is always a reckless move. That said, arm yourself with the knowledge that prices may stay deflated for some time to come. Terranova predicted the recovery could take as long as 36 months, but if your investments are in it for the long haul, three years is nothing. 

If you do plan on rebalancing your portfolio to weather the storm, he suggested investing in three sectors: energy, natural resources and food. The global demand in these areas should continue, even if our economy continues to sputter.

Click Here to link to City National Bank's 10 Tips to Keep Safe & Sane

Click Here to link to CNN Money's 3 Safe Places to Stash your Cash