Seven Financial Lessons Learned While In Flight

As I was flying this past Sunday, I had a chance to catch up on some reading. I thought, I wouold use that opportunity to to write about what i was reading.

One thing, I read on the plane was Kiplinger Magazine. There were a number of articles that I found interesting in the current issue. One such article was 7 Lessons from the Meltdown.

1. Where's the Money? - You'd Better Know Literally!
Simply put after Berney Madoff swindled $50 billion dollars and Allen Stanford alledgedly swindled $8 million, it is important to know where your money really is at ALL times. There is no such thing as unpublicized investment opportunities. (If you find someone trying to sell you one, RUN!)
ie: When you invest in the market, know which investments you are in and follow their ticker symbols. This includes your 401(k), 403b and other retirement investments.

2. New Investment Gadgets Won't Save You
These long-short mutual funds sound good in theory, but in the end they flopped to. Why? Because, they own more long (traditional way of owning stocks) then short (betting on a down market). According to the Kiplinger article, the best way to minimize your losses while you wait for the market to come back, is to

pair a fund that tracks Standard & Poor's 500-stock index with short-term government or municiple bonds.

3. Don't Deify Those Who warned About Losses
This one is simple common sense. Few of those paid annalists rarely get it right, but those beating their chests, that they did aren't heroes.
That said, if your adviser, who is always negative, suddenly urged you to switch more into cash and treasuries about a year ago, then you should being thanking him (or her).

4. Wild Swings Over Short Periods Are The New normal
Don't get worried or excited just hold on, it's going to be a rollercoaster. However, if you do sell, consider the time of day.
Don't sell them early in the day unless the company announced that it is filling for bankruptcy or some other catastrophe. Why? Because,

before midday, the bargain hunters will poach, narrowing that 10% loss to a more palatable 4% or so. If you need to sell, that's the time to do it.

5. Cash Is NEVER Trash
In times like this, it is actually better to earn only 1% in a money market rather then losing it. Not to mention there is another reason.

the beauty of cash in times like these isn't that it protects you from losses in stocks and other stuff, although it does do that. The lure of cash is that it enables you to pick up investments on sale. Gobs of high-quality stocks are down 50% or more over the past year. You can't buy them unless you have some money in reserve

6. You're Taking More Chances Then Ever Before
If you have looked at investing much, you have seen the "pyramid of risk," however with the current market, almost every investment is riskier.
With the current crisis, move all your investments (except your cash accounts-ie: bank accounts, t-bills and money funds) up one level.

7. We Live In A Tightly Wrapped World
We have become a very global economy, therefore your investments should be to. Instead of diversification in funds, REIT's (Real Estate Investment Trusts) and the like, by country, you should (and so should I) spread out accross catagories (investing in both domestic and international stocks).







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