What to do with your money

A friend of a friend of my daughter wrote me and said he had seen my blog, and he had been told by my friend that I was a friendly guy and might be willing to give him some advice. He had withdrawn his savings from his ING account and was looking for something better to to with it.

Well, if he knew about the level of my financial expertise, he would certainly be looking elsewhere for advice. However, my level of expertise does not prevent me from having opinions, so here goes.

The first piece of advice I have comes from Will Rogers: “To make money, buy some good stock, hold it until it goes up, and then sell it. If it doesn’t go up, don’t buy it.”

The rest of my advice is a little more complicated. I’ll assume you are in your thirties, so it is more important to grow what you have than simply preserve it. Everybody is wondering when the market is going to turn around, but nobody knows. I happen to think the end is near….    No, that’s not what I meant. I meant that we are not far from the bottom, that it will begin turn around in the next few months.  (More knowledgeable people than me don’t agree, and are bailing out of equities.)

The issue is: How aggressive should your investment strategy be? This means how much should be in safer, fixed income instruments like CDs, money market funds, and some bonds, and how much should be in equities, like stocks or mutual funds that have a better chance for growth, but are more risky.

In better times I would suggest a moderately aggressive approach to investing for you, but these days I would suggest a more conservative portfolio, with half your assets in fixed income items. With the other half, start to buy broad based no-load mutual funds or index funds, on a dollar cost averaging basis. Depending on how much you have to work with, divide it into 3, 6, or 9 parts and invest a part every month or two  until you are fully invested.   It’s important to develop a long term view, and don’t go for the quick return.  When the recovery is clearly underway, you could switch to a more aggressive strategy.

That should get you started.  And that is probably all you need to do for a while.  Later on, if want to get fancy, you could start thinking about gold funds on the conservative side, and international equity funds on the agressive side. Along the same line, you should learn about ADRs (American Depositary Receipts) which are the currently hot way to invest in overseas equities.  I have not learned much about them myself, though.

As I write this, the world economy seems to be sinking to ever lower levels, and people around the world seem to be fleeing equities.  I’m more of a contrarian than that, so I see it as an opportunity to get some bargains.  If I had uninvested cash at this time, that is what I would do. Overseas, they may be having more trouble recovering, so consider that, too.  Warren Buffett, who has been saying this is the time to pickup some bargains, is now predicting difficult times for an extended period.

As I said at the beginning, I am no expert, or even that experienced in hard investment decisions.  Much of what I’ve said above is pretty much standard advice for the average investor.  So please get some other advice, and hook up with a broker or investment service that you feel comfortable with.

One last piece of advice, which should really come first.  You should have at least six months worth of living expense money set aside in a highly liquid form such as money market funds, to handle emergencies before you begin any investment program that ties up your funds, or makes a quick sale possibly disadvantageous.

Good luck!

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2 Responses to What to do with your money

  1. Dave Farr says:

    Regarding what to do with your money I have found the advice of Richard Russell, the oldest financial letter writer in the nation, to have made some great calls over the years. I ran across him when he alone suggested stocks in 1980 at a Ruff Times Seminar advocating precious metals. He was dead on right. Now he suggests cash and gold coin (if you can get them..at a high premium due to increasing demand. . He feels the dow should hit 5000 before it becomes a bear market bottom value. That is where the Dow is priced at below 10x earnings and yielding 5-6%. He feels that gold stocks like GLD will follow the bull market in gold which he says we are still in. You can buy gold coins from Monex a reliable supplier by going to monex.com Owning things like gold is a good balance to the collapsing fiat currency we see around the world and particularly the dollar

  2. patrick says:

    thanks for all the food for thought. i still don’t have a plan, but i do feel closer to making some moves. now is a good time to buy low, i just hope that we will get back to a place where one can sell high…

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