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10 Common Sense Tips That I Learned
I am no rocket scientist, but I have been through at least 2 recessions, and actually did quite well during those periods. Here are some common sense tips to get you through these trying times. First, the Don’ts.
1. Do not believe what you read. Fear and panic sell far better than common sense and good news. Take all facts reported with a grain of salt, and discard all opinions. Television, newspapers, magazines and even e-news sites are in business to sell you something (advertising); not necessarily to make you better informed. They may even have their own agenda.
2. Do not believe anything a politician or government expert says. If they really knew more than us, they would have seen this debacle coming a long time ago. For example, even I wrote early in 2008 that the recession started in late 2007. No politician dared utter the “R”word until late October 2008. I (and many others) saw the real estate collapse coming in 2005. But the politicians liked how the free-wheeling market kept the economy chugging along. It is intuitive that these folks tell us what they think we want to hear, not what we need to hear. Or maybe they never had a clue. It really is time for us to start thinking for ourselves.
3. Do not heed advice from any Wall Street “expert” or analyst. These folks really do not have any better idea what is happening than you or I. If they did, they would all be wealthy and not need to peddle advice for a living. If they tell you to sit on the sidelines for 6 more months, that is because they will be back in the market in 3 months so that they can sell to you in 6 months. If they tell you to buy now because stocks are cheap, it is because they are trying to unload their losers. Really, if you flipped a coin for every stock market decision, you would consistently outperform 85% of the pundits out there. If you must be in the market, here are some common sense approaches.
a) Dump your losers and marginal performers now and take the tax writeoff. At least you will see some immediate tax savings, before the tax rates get hiked up to pay for the bailout.
b) If you must buy, buy solid companies with a good track record and plenty of available cash on hand. Do not try to time the bottom of the market, as no one knows where it is. Use dollar cost averaging to buy. Ride the cycle through the bottom and when it starts coming back up, stop buying when the price matches what your first purchase was. Companies paying dividends are especially nice at these prices.
c) Consider that we are in a bear market for the near term, and that the stock market will most likely underperform other investments for the next year (or two or three). Consider other investment vehicles.
d) Market volatility may tempt you to speculate on a quick killing. Don’t! Go to Las Vegas instead. At least you will get a free drink while you lose your money.
This market collapse cannot be compared to any other. The laissez-faire free market capitalist economic model is in danger of total collapse. Think of what that means. Also, we cannot compare recovery periods by looking back in time. The world’s economies are now inextricably linked in a way unlike any other time period. Our recovery depends on the recovery of so many other nations, many of whom do not have a mature economic infrastructure to help them back onto their feet. These countries could act as lead weights to our recovery, despite all of the infusion of capital by the Feds. Do not be naive about how long this economic downturn could last.
Now here are some common sense things to do.
4. Strengthen Your Position. If you are a business owner, now is an excellent time to visit your clients and reassure them that you will be around for the long haul to meet their needs. It is also an excellent time to increase your market share by acquiring weaker competitors and to lure top talent away from them. Just be sure to pay what they are worth, or they will be gone the minute the economy recovers.
5. Cash is king. Debt is death. If you were foolish enough to accumulate a pile of credit card debt, start by paying that debt off. The interest you save is most likely the best return you will ever see on your money. If you are debt free, then start an aggressive savings program by paying yourself first. Search for the best interest rates on the Web. There are many online banks, FDIC insured, that pay far more than your local bank. Also check out credit unions.
6. Consider alternative investments. Fill a need. Right now, banks aren’t lending. Maybe you can be “the bank”, provide capital to a worthy business, or be a lender on real estate. Your returns would be far better than a money market account, and you would be alleviating the credit crunch for someone. Just do your homework beforehand. Check out Virgin Money as an intermediary. Richard Branson is already ahead of the curve, as usual. Or maybe invest directly in real estate. The nice thing is that real estate values rarely drop to zero (unlike stocks). Just don’t leverage, and always remember that a prime location at an expensive price is always better in the long run than a lousy location at a cheap price. Plan on a long term holding period.
7. Chart Your course. Develop a 3 month, 6 month, 1 year and 2 year plan of action. Set your goals, then your benchmarks to reach those goals, and follow them religiously. Review the plan every 3 months and revise as needed. Without goals and a clear plan of action, you are doomed.
8. Look for opportunities. They are absolutely everywhere, in every field. This time period is a bargain hunter’s treasure trove; literally the best I have ever seen in virtually every area.
9. Think positive. No recession lasts forever. You will survive, and maybe even learn a thing or two about economic cycles. Take time to laugh and whatever you do, keep your sense of humor. If you don’t have a sense of humor, make friends with someone who does.
10. Strengthen Your Relationships. Spend more time with your family and friends. Offer to help those less fortunate than yourself. Take the time to make yourself a better person. Know that, when all is said and done, it is not what we have in our account, but who we have in our hearts, that truly makes us wealthy.
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