Be careful following one-size-fits-all advice. There are some basic rules of money to remember when it comes to investing in uncertain times:
1. Always keep eight months of living expense money available for your needs in case you have a financial emergency.
2. Pay down debt that has an interest rate that can increase for any reason. Credit card interest rates often are the most likely to rise when inflation begins to set in, so be sure to rid yourself of consumber debt.
3. Choose a good financial planner to help make a long term strategy if you feel you need help. Often an objective adviser can look at your finances and see problems you can miss. Can’t afford one? Check with Consumer Credit Counseling.
Investments When Stocks are Losing Ground
During the last recession, stocks, municipal bonds and commodities all took a beating . Investors only found stable returns in a few places.
Money markets are guaranteed by the FDIC up to $250,000, as are FDIC covered banks. You should never have more than that in any one account. The downside is that the return on money markets is not very substantial.
Another excellent investment is TIPS, Treasury Inflation-Protected Securities. These Treasury Securities are backed by the United States government and the return is adjusted for inflation. These can be purchased directly from the U.S. Treasury.
Certificates of Deposit are bought from banks and can actually be acquired for periodic payout dates. Check the rating of the bank before buying. Again, these can sink to low levels when the federal government has low interest rates, too.
These are the safest options during risky financial times, though TIPS are the only investments providing enough return to fight off inflation. Do your homework, and remember that the higher the yield, the more risky the investment.
Keep Your Eyes on the Goal
There is statistical proof that diversification provides the best return for a portfolio. This means that a good portfolio has stocks, bonds, precious metals, real estate, and collectibles. The great thing about dollar-cost-averaging is that you purchase these items for your portfolio over a period of time no matter what the price, another key component of recessin investing. Over time, the portfolio grows, and you must be disciplined to add to your portfolio during market fluxuations. Keep these things in mind:
1. Precious metals offset inflation and irresponsible government spending. In the past six years, precious metals have had a wildly successful run up in price, and some financial gurus claim that because of the huge deficit, metal prices will continue to rise. Gold and silver can be purchased in a physical form or in Exchanged Traded Funds.
2. Real estate investments can be purchased as stock market vehicles such as ETFs or REITs, or as physical property. The recent decline in prices can be seen as a buying opportunity. Like all investments, be sure to understand when a market is overvalued, and wait for better buying opportunities.
3. Collectibles need to be worth a great deal to someone else before you should consider it as a part of a porfolio. Some good collectibles include original movie posters, antiques, rare coins, and artwork. Study these well before investing in them.
Almost anyone can invest successfully during good economic times. However, perseverance and courage to stick to a plan builds a solid financial base. Investing during tough economic times often means finding the best deals to add to your portfolio.