Dow soars 417 on Fed move

[robert]

Somewhat interesting, felt like sharing:

 

http://money.cnn.com/2008/03/11/markets/markets_wrap/index.htm?postversion=2008031117

[Guest]

I think there's gonna be a lot of yoyoing while the market is under 13,000...even more while its under 12,500. Its when it gets close to its max that growth will not really be there....417 points isn't really growth when you've dropped 1000 in recent history.

[DV]

Ah, the stock market. Play at your own risk. I'm no longer a believer.

 

I've been around for the stock market crash of 1973–4, the Black Monday of 1987 and the Dot-com bubble of 2000. I was only heavily invested in the market in 2000. Thank god I wasn't retiring in the early 2000's or I would have had to continue working for years. My husband and I both saw our retirement savings decrease by 30% or more. So did many others. It took us about 4 years to get back where we started - definitely not where we should have been according to those who sell you on the wonders of the stock market over time.

 

It's amazing that those who run many companies traded on the stock market will make bonuses and high salaries while our retirements are eroded. It's easy for them to have confidence in the market. For those of us who don't participate, our government's pandering to the market means that you cannot get a decent rate on a savings account, CDs or bonds. It's bullshit. But it will change eventually. There will be another crash and interest rates will eventually go sky-high again. It will be devastating for those in the market but a bonus for those with liquid assets.

 

I assume that most members of this forum are too young to have much in savings or retirement at this point. For you, I cannot stress enough that the BEST way to attain financial strength (on any salary) is to 1) Live below your means, 2) Purchase very little on credit, 3) Save, save, save regardless of where you have it invested, 4) Maintain your health, 5) Save, save, save.

[Ravi]

The Fed move is a sign of desperation....it's funny how the market can interpret it as a positive thing. This is only temporary. In fact, most of the liquidity won't event make it to the hands of consumers....the government is going to soak it back up to fund it's massive outstanding debt....most people don't understand this and therefore....you get a crazy bounce on the news.

 

Really, I think we might see a bit of a recovery throughout the summer/fall given our decline of late....but I think the next 10 years are going to be tough sledding for much of the US/Europe. It's demographic related. The baby boomers are retiring in massive numbers. Supporting an aging population puts a major strain on an economic system. If you've been to Asia, you've sen the droves of young people (working age/early in their careers)...and they aren't all clamoring to come to the US....not good for our economy.

[DV]

Good points.

 

It's frightening to think that if all Americans started doing what's best for them individually (spend less, get out of debt, save more), our econcomy and much of the world's would crash.

[beforewisdom]

If they did it overnight, which is impossible.

 

Most Germans still live by the work hard, spend a little, save a lot and avoid credit philosophy. Germany had one of the best economies in the world before they took on the financial burden of cleaning up the mess left by the communists in East Germany.

[beforewisdom]

There is now a science of happiness, so to speak. Researchers have been looking at what makes people happy. Many have looked at who the happiest populations are and are not.

 

Some of the happiest populations in the world are from the poorest countries. Some of the unhappiest are Canada, the US, the UK and the EU.

 

So, the happiest people in the world ARE happy and it isn't because they have iPods, bluray dvd players, the latest gear from REI and all of the other junk we work our asses off as well as use credit for.

 

If everybody learned to live within their means many people might lose their jobs as demand for crap reduced, but people will still need the basics. People could adjust by having fewer children and they can certainly be happy by learning how to live with less stuff.

[Guest]

I think the real problem is the top of the income ranks. Regular people need to spend nearly all they make(they may save some) while really wealthy people spend very little compared to their income(even though they spend way more than most). The savings they have never make it into the economy. Lets say people that make less than $50,000 need to spend roughly 90% of their income to live comfortably. Could you imagine where the economy would be if everyone who made $200,000 and more spent 90% of their income? Hell...what if Bill Gates spend even 20% of his ever year??? We'd almost have to make it illegal to be unemployed since there would be such a greater need for a larger workforce.

[Laura]

Ah, the stock market. Play at your own risk. I'm no longer a believer.

 

the BEST way to attain financial strength (on any salary) is to 1) Live below your means, 2) Purchase very little on credit, 3) Save, save, save regardless of where you have it invested, 4) Maintain your health, 5) Save, save, save.

 

DV: Thanks, this is really good advice. Do you think it's worth continuing to contribute to a Roth IRA right now, given the crappy outlook for the stock market? Or do you think it would be smarter to maximize my liquid savings in a high-yield savings acct or money market fund and eventually buy some real estate as an investment property? Or would you just maximize your liquid savings and forgo the real estate idea? I'll continue to contribute just what my company will match to my 401k, but that won't be nearly enough for retirement. I appreciate any advice you can give me!

[CollegeB]

Good to see some folks chiming in on this. If money keeps inflating I fear losing some of what is in savings. Stock market or investing in precious metals, things of value might be better. Beforewisdom thanks for sharing that interesting bit about germans. As soon as I buy some more stuff I'll emulate them.

[xveganjoshx]

I'd like to transfer my savings into some form of value besides the US dollar. Gold is something I'm considering, the euro is also something. I don't trust the dollar. I see it going from bad to worse for the US economy.

[VeganDude]

It's incredible how low the dollar is compared to the euro at the moment.

When the euro was introduced a dollar was about the same as a euro, now its around 0.6!

[beforewisdom]

Ah, the stock market. Play at your own risk. I'm no longer a believer.

 

the BEST way to attain financial strength (on any salary) is to 1) Live below your means, 2) Purchase very little on credit, 3) Save, save, save regardless of where you have it invested, 4) Maintain your health, 5) Save, save, save.

 

DV: Thanks, this is really good advice. Do you think it's worth continuing to contribute to a Roth IRA right now, given the crappy outlook for the stock market? Or do you think it would be smarter to maximize my liquid savings in a high-yield savings acct or money market fund and eventually buy some real estate as an investment property? Or would you just maximize your liquid savings and forgo the real estate idea? I'll continue to contribute just what my company will match to my 401k, but that won't be nearly enough for retirement. I appreciate any advice you can give me!

 

Laura;

 

1. Do everything DV said.

 

2. Get a copy of the book "Get A Financial Life". It is written for people who are just starting out who are not finance geeks. It will teach you the basics of managing your money in a friendly and brief way.

 

3. Establish an "emergency fund" in a money market account ( I like Vanguard ). Put at least 3 months of living expenses in it.

 

4. Max out your 401K contributions AND your IRA contributions. While you are young you want to maximize the magic of compound interest. It doesn't matter what is going on short term in the economy in the same way it doesn't matter what you weigh on any given morning. Investing for retirement like weight control is a long term venture where trends over the long run matter.

 

5. Go see a financial counselor. They will pick low risk mutual funds that they know that will come back up when the economy recovers. They can also give you other good advice in addition to coordinating, maximizing everything you can do to prepare for retirement...like telling you how much you can contribute and how it affects your taxes.

 

Doing these things are like taking care of your teeth. When you are older you always wish you did more of it while you were younger.

[Guest]

I may be going to the Philippines to race for a few months next year and I'm contemplating transferring half my bank account or more. They've had a stable bill for a long time. It sounds odd to me to think I'll make money but switching to the peso. Odd thing is that when I was 8 the exchange rate was 1:20...last time I went I was 18 and it was 1:52 and now its 1:41.

[DV]

Ah, the stock market. Play at your own risk. I'm no longer a believer.

 

the BEST way to attain financial strength (on any salary) is to 1) Live below your means, 2) Purchase very little on credit, 3) Save, save, save regardless of where you have it invested, 4) Maintain your health, 5) Save, save, save.

 

DV: Thanks, this is really good advice. Do you think it's worth continuing to contribute to a Roth IRA right now, given the crappy outlook for the stock market? Or do you think it would be smarter to maximize my liquid savings in a high-yield savings acct or money market fund and eventually buy some real estate as an investment property? Or would you just maximize your liquid savings and forgo the real estate idea? I'll continue to contribute just what my company will match to my 401k, but that won't be nearly enough for retirement. I appreciate any advice you can give me!

 

Laura,

 

I'm not qualified to give financial advice but I can tell you what I have done (age 42). Keep in mind that I am EXCEPTIONALLY conservative in my investments and therefore my wealth depends on saving a lot. BeforeWisdom also gave some good advice. I have never purchased real estate as an investment. With our homes in the last 15 years, we've only ever broken even once you consider taxes, interest payments on mortgages, roof repairs, painting, landscaping, etc., etc. I purchase a home to live in and hope I break even in the end. However, many have made profits on real estate in the past. But many are currently losing so I can't recommend this one.

 

1) I max out my Roth and traditional IRA and keep the money in US Treasure bonds of differing maturities right now. That way I'll be able to take advantage of CDs when they eventually go up.

 

2) I have a pension-type plan at work where I max out my contributions.

 

3) I have some annuities.

 

4) I bought gold when it was much cheaper (doesn't help you now, I know).

 

5) Read the book "Wallstreet Versus America", link here: http://www.amazon.com/Wall-Street-Versus-America-Investments/dp/1591840945. Basically, he takes you back in very recent times to expose the stories that should have stayed in our memories. And he gives golden advice if you want to play - stick to index funds with the cheapest fees.

 

6) Financial advisors - I've paid a lot of money for them in the past and won't ever again. If you use one then get a flat rate fee. Do NOT let them take a percentage of anything of yours.

 

7) Have money in savings now. Get out of your highest interest debt first and then chip away at the rest of it. You need about 9-12 months of savings to survive if you become sick, have and accident or lose your job - so make it fairly liquid.

 

Don't invest in any long term CDs right now as they'll most likely go up in interest.

 

9) You don't always have to be fully invested in an interest/income earning product to make money. One of my friends had rolled over her 401K into an IRA back in 1999 and sat on it for 2 years without investing. She lost nothing while I lost almost a third of my IRA/401K holdings. Not losing IS winning in a losing market.

 

10) Don't believe anyone who tells you that you can make 8% per year over the lifetime course of your investments in the stock market. It depends on when you get in, when you get out and making much more than 8% once you figure in fees and taxes.

 

 

Please keep in mind that I'm completely jaded concerning the stock market and that I have made SAVING my biggest strength. If the stock market ever looks like it did back in the 90's then I might get back in for awhile but it would not be for a lot and it would still be in conservative funds. It's good to have liquid resources when a solid investment opportunity arises.

[Laura]

Doing these things are like taking care of your teeth. When you are older you always wish you did more of it while you were younger.

 

Thanks!

[Laura]

1) I max out my Roth and traditional IRA and keep the money in US Treasure bonds of differing maturities right now. That way I'll be able to take advantage of CDs when they eventually go up.

 

2) I have a pension-type plan at work where I max out my contributions.

 

3) I have some annuities.

 

4) I bought gold when it was much cheaper (doesn't help you now, I know).

 

5) Read the book "Wallstreet Versus America", link here: http://www.amazon.com/Wall-Street-Versus-America-Investments/dp/1591840945. Basically, he takes you back in very recent times to expose the stories that should have stayed in our memories. And he gives golden advice if you want to play - stick to index funds with the cheapest fees.

 

6) Financial advisors - I've paid a lot of money for them in the past and won't ever again. If you use one then get a flat rate fee. Do NOT let them take a percentage of anything of yours.

 

7) Have money in savings now. Get out of your highest interest debt first and then chip away at the rest of it. You need about 9-12 months of savings to survive if you become sick, have and accident or lose your job - so make it fairly liquid.

 

Don't invest in any long term CDs right now as they'll most likely go up in interest.

 

9) You don't always have to be fully invested in an interest/income earning product to make money. One of my friends had rolled over her 401K into an IRA back in 1999 and sat on it for 2 years without investing. She lost nothing while I lost almost a third of my IRA/401K holdings. Not losing IS winning in a losing market.

 

10) Don't believe anyone who tells you that you can make 8% per year over the lifetime course of your investments in the stock market. It depends on when you get in, when you get out and making much more than 8% once you figure in fees and taxes.

 

 

Please keep in mind that I'm completely jaded concerning the stock market and that I have made SAVING my biggest strength. If the stock market ever looks like it did back in the 90's then I might get back in for awhile but it would not be for a lot and it would still be in conservative funds. It's good to have liquid resources when a solid investment opportunity arises.

 

Thanks! I'll make my roth and 401k portfolios more conservative, work on decreasing my expenses and increasing my liquid savings. I don't have any credit card debt but I have student loans at a 3.88% interest rate. If you were me, would you pay that off before or after you fully fund your liquid savings?

Edited March 24, 2009 by Laura

[Guest]

3.88% fixed??? I'd take advantage of the bad economy(as long as your stable enough) and let inflation make those payments easier. Lets say you have to pay $300 a month...$300 a month now may kinda be a big deal but in a ten years that'll be nothing. That'll leave you with more free cash to do what you please. I thought my brother was being stupid not paying his student loans off(he's started with nearly $200,000) but now its looking like that was a good idea even though he could pay that all off in less than two years with the way he spends his money.

[Laura]

3.88% fixed??? I'd take advantage of the bad economy(as long as your stable enough) and let inflation make those payments easier.

 

I hate carrying debt but that is a really good point. I hadn't thought of that.

[beforewisdom]

The criteria to look at in deciding whether to pay off a debt or make an investment is the interest rate. The interest rate on an investment is income. The interest rate on a debt is an expense. In the end it is about how much you can keep.

In other words, it is more important to avoid spending $5 than earning $3.

 

Paying off a debt with 4% interest is like "earning a return" on a 4% investment as that money isn't leaving you. So if you have a choice between an investment with a return of 3% or paying off a debt of 4% you will get more money by paying off the debt first since the interest rate is higher.

 

All of this presupposes that you have taken the first step in any personal finance program, which is to establish an emergency fund that can cover your living expenses for at least 3 months. Once you have that ( preferably in a money market account ) then you next step is to pay off your debts, then to max out your retirement savings, then investing in mutual funds and lastly playing with higher risk investments if you are so inclined.

[DV]

Veganpotter and BeforeWisdom give good advice on this one. I would definitely get my liquid emergency fund going first. I've had a major loss in my earning career (lost 2/3 of income for 6 months). If I did not have the savings to float at that time it would have been disasterous. I work in a field where your immediate back-up plan makes or breaks you - and I can say that it's the same for your financial life.

 

Next, invest as much as possible in tax-free or tax-deferred savings. There is a big difference between paying 4% interest and earning compounded, tax-free 4% interest.

 

Your student loans have a very low interest rate. I would make this my third concern.

 

Congratulations! You have very low debt at a very low interest rate. Most people should be so smart about their debt (yes, I understand that some people cannot help but be in debt but allow me to give praise where it's due).

 

Remember, your financial picture and plans should remain fluid as your goals and the economy changes. Just like determining your physical health, you are the best person to determine your financial health. You can pay for advice and services but nothing works as well as educating yourself. And no one really cares about you as much as you do - especially if they're getting a fee to talk to you.

[Laura]

Beforewisdom and DV: Thanks again!

Edited March 24, 2009 by Laura

[Laura]

BTW -- nice avatar, DV!

[DV]

Thanks! It's been long time coming - I finally outgrew Tigger.

[beforewisdom]

I liked Tigger.

 

Very friendly welcoming gesture.