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Money Guidelines for 2009Where should you be in 2009? Three tips that will put you in the right spot.
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Making the right moves isn't always easy, but these tips will help. |
With the year 2008 now a fading memory, it’s time we reflect on the lessons taught and how they may guide us in 2009. There’s no denying, for many American families, that last year qualified as "interesting," keeping with an ancient Chinese curse: May you live in interesting times. Record numbers of investment disasters, bank failures, home foreclosures and personal bankruptcies cannot soon be forgotten. These must, however, reflect more than simply a bad aftertaste. Better they provide guidelines to insure we not make the same mistakes a second time. There are three important lessons to be etched into our consciousness.
1. Everything is subject to change. Several years ago, as the nation’s stock of homes increased in value monthly, who among us predicted housing prices would be setting new lows? Similarly, did it seem possible a mere twelve months ago that both Merrill Lynch and Lehman Brothers would today be relegated to history? You may extend this to employment. In my state, California, the unemployment rate is now 8.4 percent, an increase from 5.7 percent just one year ago. This translates to more than one-half-million previously employed Californians now without a job. The significance of these realities cannot be ignored.
Whatever the programs in which you and your partner embark, instinctively hedge your bet. If, for example, after thorough analysis you make an investment in a particular corporate security, don’t tuck the certificate into a safety deposit box and forget it. You’d better reanalyze the company monthly, making certain the factors that caused you to choose it in the first place remain valid. If the firm’s fortunes deteriorate, an immediate sale may be called for. In planning for the future, keep one thing in mind: There is nothing more certain than uncertainty. 2. Be careful from whom you take advice. If 2008 demonstrated anything, it is the imperfection of the investment advisory business. The hundreds of billions lost by Mr. and Mrs. Ordinary Citizen stand in evidence. Unfortunately, most advisors are devoid of investment expertise. The result is predictable. As typical clients you’ll be sold into a number of mutual funds. Whether the funds relate in any way to your financial expectations is incidental. This is partly because few advisors possess any understanding of what constitutes a sound investment and partly because generating fees and commissions is the paramount consideration. Even if your advisor actually knew something, you’d probably never be told. To protect yourself, you may try to prequalify your counselor. However, don’t expect credentials, such as certification to ensure proficiency. Comedian Mel Brooks provided a classic definition of certified: "You’re a nice guy . . . we like you . . . you’re certified."
A final warning: You cannot depend upon a hired advisor to responsibly invest your money. You must develop an understanding of what constitutes an acceptable investment so the final decisions are yours.
3. Cash is king. When financial problems occur, as they do for us all, there’s a basic ingredient which invariably smoothes the path. It is cash. The auto must be overhauled; your daughter needs unexpected surgery; you find yourself unemployed. These are not times to be charging to your MasterCard or floating a home equity loan. If the events of 2008 illustrated one thing, it is the precarious predicament in which so many American families found themselves with few reserves. The message is clear. When times are plush, you squirrel it away. As a perfect example of how not to do things, witness the operation of the State of California, now tens of billions annually in the hole. When in past years, the dollars flowed in, state officials spent every dime and then some. With the pigeons now home to roost, it appears to be every spendthrift for himself and herself. Take your cue from the mistakes of others: Make certain you’re sufficiently liquid so not to be caught unexpectedly short.
Al Jacobs has been a professional investor for nearly four decades, with articles that appear regularly in a variety of online and print publications. His financial column, "On the Money Trail," can be viewed at www.onthemoneytrail.com.
1. Everything is subject to change. Several years ago, as the nation’s stock of homes increased in value monthly, who among us predicted housing prices would be setting new lows? Similarly, did it seem possible a mere twelve months ago that both Merrill Lynch and Lehman Brothers would today be relegated to history? You may extend this to employment. In my state, California, the unemployment rate is now 8.4 percent, an increase from 5.7 percent just one year ago. This translates to more than one-half-million previously employed Californians now without a job. The significance of these realities cannot be ignored.
Whatever the programs in which you and your partner embark, instinctively hedge your bet. If, for example, after thorough analysis you make an investment in a particular corporate security, don’t tuck the certificate into a safety deposit box and forget it. You’d better reanalyze the company monthly, making certain the factors that caused you to choose it in the first place remain valid. If the firm’s fortunes deteriorate, an immediate sale may be called for. In planning for the future, keep one thing in mind: There is nothing more certain than uncertainty. 2. Be careful from whom you take advice. If 2008 demonstrated anything, it is the imperfection of the investment advisory business. The hundreds of billions lost by Mr. and Mrs. Ordinary Citizen stand in evidence. Unfortunately, most advisors are devoid of investment expertise. The result is predictable. As typical clients you’ll be sold into a number of mutual funds. Whether the funds relate in any way to your financial expectations is incidental. This is partly because few advisors possess any understanding of what constitutes a sound investment and partly because generating fees and commissions is the paramount consideration. Even if your advisor actually knew something, you’d probably never be told. To protect yourself, you may try to prequalify your counselor. However, don’t expect credentials, such as certification to ensure proficiency. Comedian Mel Brooks provided a classic definition of certified: "You’re a nice guy . . . we like you . . . you’re certified."
A final warning: You cannot depend upon a hired advisor to responsibly invest your money. You must develop an understanding of what constitutes an acceptable investment so the final decisions are yours.
3. Cash is king. When financial problems occur, as they do for us all, there’s a basic ingredient which invariably smoothes the path. It is cash. The auto must be overhauled; your daughter needs unexpected surgery; you find yourself unemployed. These are not times to be charging to your MasterCard or floating a home equity loan. If the events of 2008 illustrated one thing, it is the precarious predicament in which so many American families found themselves with few reserves. The message is clear. When times are plush, you squirrel it away. As a perfect example of how not to do things, witness the operation of the State of California, now tens of billions annually in the hole. When in past years, the dollars flowed in, state officials spent every dime and then some. With the pigeons now home to roost, it appears to be every spendthrift for himself and herself. Take your cue from the mistakes of others: Make certain you’re sufficiently liquid so not to be caught unexpectedly short.
Al Jacobs has been a professional investor for nearly four decades, with articles that appear regularly in a variety of online and print publications. His financial column, "On the Money Trail," can be viewed at www.onthemoneytrail.com.
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