Cats and Money

I recently opened my end-of-year 401(k) statement that was mailed to me. I looked at it, and, like most individuals in recent months, felt my heart stop momentarily. Yes, it's an ugly scene for investors out there; open statements with caution.

So as is customary, I set it aside on my desk to file it away for future reference.

Today, I went to pick it up to file it and noticed that my cat also had reviewed this 401(k) update. I could tell because there was a gigantic, mushy hairball on it. I promptly filed that in the circular bin, which is what I should have done in the first place. Perhaps we don't give cats enough credit for their investing skills...

Where to Entrust Your Money

Getting down to the core of it, investing in stocks means you entrust people that work at public companies to get a better return on your money than you would be able to do on your own. In other words, when you have extra money sitting around, you can either spend it, put it in an interest bearing product (CD's, savings account, etc) or put it to use in another vehicle like stocks to try and get a better return. This entails higher risk obviously.

But with all of today's talks about bailout plans of financial institutions by the government, failing banks and investment companies, and a failing credit system, why should anybody trust other companies to get a better return than I can?

Okay, I'm being a little extreme, but all of this turmoil definitely has a negative reflection on the viability of blindly trusting other companies to do better than you can on your own in terms of getting return on investment. For better or worse the stock market is still the best system we have for building wealth, but now more than ever it's important to realize that you're still risking your trust in someone else to excel. Buyer beware and let's hope this whole thing shakes out soon and proves to be an improvement over where we've been.

Where to Put Your Money in 2008 (A Novice's Observations)

Important disclosure: I am NOT a financial advisor, or in any way a formally educated professional in the realm of economics. Marketing is more my territory, which pretty much resides at the opposite end of the spectrum compared to finance. However, I do like to watch my money and make sure I'm doing the best I can with it, so I'll read various prudent publications, including Fool.com, Money Magazine, Morningstar.com, and so forth. (For the record, I focus on reading about investing "basics" such as saving money, avoiding debt, investing in the stock market, and home equity issues. I personally don't have the time or desire to get into more complex and exotic financial alternatives like options, municipal bonds, futures, etc. Those are way above me at this point in time.)

And from what I've been reading, there isn't much that's enticing about today's financial markets as we look at the strong possibility of a pending recession. So here's the situation we're in, as far as my amateur financial mind sees it:

-Stocks are taking a plunge.
-Housing prices are dropping as foreclosures go up and fewer people are moving in general
-Interest rates for CDs, savings accounts, etc. have dropped in recent months
-People are generally not spending much
-Debt levels for households seem to be rising, and many banks are in a credit crunch
-Taxes are historically rather low, but likely will be rising in the next few years as we have to pay off many expenses, such as the war we're in now, social security, etc.

All in all, not much to smile about there. But this leaves the important question: Where should I invest my money in 2008? Here are some possibilities:

-Invest in stocks. The market could keep dragging for a while, but the rebound could be here in the next few months, meaning you'll have a strong chance of getting a surge somewhere down the road. Stock investing is always the best long term plan for most people, so ignore current trends and just keep investing over time regardless of what Mr. Market is doing.
-Pay off debt. If you're not intrigued by the stock market for the short term, perhaps now is a good time to focus on lowering your credit card or other debt payments. This is a must if your interest payments are high to begin with (say 4% or higher), but even if they're lower, perhaps it's a good idea to get a head start since saving your money in CDs or money markets doesn't pack as great a punch as it did a few months ago. Chipping away or eliminating credit card debt or high-interest loans will go a long way to helping you, plus you'll feel less stressed about having to pay the bills.
-Put more money in your home equity. I've heard the expression that paying off the principal on your home is kind of like forced savings, and perhaps now's a good time to build on that. Doing this allows you to invest in yourself essentially, though the returns over the long run will not be as strong as investing in the stock market.
-Put it all on "black". Hmmm, okay, gambling probably won't get you ahead anytime soon so you might want to ignore that suggestion. But hey, it's your money.

Hope you enjoyed these random, simplified thoughts. While I'm no expert, these ideas could serve as a starting point for further research in your monetary plans. Good luck!

Stock Market Advice: Ride It Out!

Now I do not profess to be a financial wiz (nor is this post intended to be interpreted as professional advice and all information herein is strictly this writer's opinion... ha! That's my legalese for this financial post), but I've heard a lot of people worrying about the U.S. stock market lately. My opinion: save the energy and channel your worrying into something more productive.

The market has been extremely volatile of late and from all indications it seems like this trend will continue for a while, at least until the mortgage situation, strength of the dollar, and consumer spending show signs of improvement. One day the market is up big, the next day it plummets. It's a line-graph maker's dream... or a financial wizard's hell.

What this means to the average investor is... just ride it out. Unless you have to use the money you have invested in the market sometime soon, in which case you shouldn't have your money in the stock market to begin with, you're better off just rolling with the ups and downs. Over the long run, if you're invested in strong stocks and/or mutual funds, you'll see the returns flow your way while everybody else is busy trying to time the market. It ain't worth the aggravation to do this, and it ain't worth all of the brokerage commissions you'll be dishing out. So just hold on tight, make sure you're invested in the companies you feel are the best (which is always true regardless of the market's short term trends), and let things handle themselves. You'll do yourself a world of good. And you can use all of that "worrying energy" to improve your life in some other way.

Good luck and good investing!