I drove to the box factory earlier this week to chat with my former co-workers. While I was there, I asked my cousin Nick (the bookkeeper) for info on the company retirement plan. I still have $80,000 that I need to roll over once I set up my new 401(k) for the blog. Only, it seems I don’t have $80,000 in retirement savings anymore. It’s more like $60,000. 2008 has not been kind to American investors, and this week has only added salt to the wound.
A few readers have written to ask about the recent financial turmoil. I’ve been slow to reply, though, because discussing economics is outside my comfort zone. Also, my fundamental thoughts on the situation haven’t changed since the last time the market had a meltdown. My personal advice for times like this remains:
- Don’t panic.
- Tune out the media.
- Remember your goals.
- Focus on the fundamentals.
- Know your risk tolerance.
- Educate yourself.
My top recommendation is to go the public library and borrow a copy of William Bernstein’s The Four Pillars of Investing. I’ve found that the more I read about financial history and the way markets work, the less frightened I am by daily events.
Many people see the current downturn not as something to fear, but as an opportunity. Trent at The Simple Dollar just maxed out his 2008 IRA on Monday afternoon. He writes: “I’m essentially getting the same index fund I would have bought back in January at a 25% discount.”
Here are some past posts at Get Rich Slowly about this subject:
- Why it pays to ignore financial news — “Financial news can be dangerous to the health of your investment portfolio.”
- Warren Buffet on market fluctuations: Investors gain when the market falls — “Be fearful when others are greedy, and greedy when others are fearful.”
- What the stock market decline means for you — “The best bet for the average investor is to just sit back, relax, and remember that investing in the stock market is a long-term proposition.”
- What if the stock market makes you nervous? — “If your risk tolerance is low, then the stock market may not be right for you.”
- The upside of risk: Why market volatility is a good thing — “The longer you hold on to stocks, the more volatility declines.”
I had considered writing a post about this week’s events, but then I saw that Ramit at I Will Teach You to Be Rich has done the work already! He’s created a three-minute video with tips for today’s economy:
If you want more information, I urge you to read his blog post on the subject, which elaborates on his presentation. His basics points are:
- Your deposits are generally safe, but your money is not insured against losses in the stock market.
- Don’t worry about things you can’t control, like macroeconomics and fiscal policy. Worry about things you can control, like your job and your savings.
- Save. Diversify your investments. Focus on making smart choices with your own finances. (And those smart choices haven’t changed in the past week or month or year, by the way.)
For a great summary of the recent turmoil in the financial markets, read this post at the Freakonomics blog. Here’s a quote:
The concern for the man on Main Street is not the bankruptcy of Lehman, per se. Rather, it is the collective inability of major financial institutions to find funding. As their own funding dries up, the remaining financial firms will be much more cautious in extending credit to normal firms and individuals. So even for people whose own circumstances have not much changed, the cost of the credit is going to rise. For an individual or business that falls behind on payments or needs an increase in short-term credit because of the slowing economy, credit will be much harder to obtain than in recent years.
Free Money Finance recently asked his readers, “Can you handle a troubled economy?” What about you? Does the economy make you nervous? Why or why not? Are you making any changes to your plans? Are your finances able to weather this financial storm?
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