1. Anyone who does not want to risk his money should not put his money in the stock market. Yes, yes, I know all the statistics about how the market performs over a fifty year period. But let me tell you about a woman I know who is long past retirement age. About a year ago she got a final settlement of $100,000 from her ex-husband and she was complaining that it was now only worth $56,000. How is that possible, I asked her ....
I had assumed she put this money in a bank. She told me she had put the money in a money market fund and that it had gone way down and she was going to take the money out. I gather she didn’t know, or her broker neglected to tell her that the instrument into which she put her money was, as the name implies, in the market. Some instruments of this type available at your bank are insured by the FDIC. Hers was not. In these uninsured funds your NAV (Net Asset Value) is not guaranteed. You could blame this mistake on a clueless old lady, but I heard someone as intelligent as journalist Bill O’Reilly say recently that his market investments of the past seven years have been wiped out in the last two months this should not be allowed. Unfortunately it is his tough luck. Market fluctuations are not against the law.
2. Want to be sure the Net Asset Value of your cash does not go down? Put it where your assets are insured. Risk/reward ratios mean that when there is a higher reward, there is a higher risk. Lower risk, lower reward. Among the least risky things you can do with your money is to put it in a bank. The reward will thus be lower. But unlike my friend, you will not look at your statement one day and see that your savings has dropped in value by fifty percent.
3. What if the bank fails? If a bank fails your savings are insured by the federal government up to $250,000.
4. What if the federal government goes broke? If the government fails, then we’re all up a creek.
5. If your company has a 401k program and they will match some of your contributions with stock, there is risk in counting on this as your only retirement plan. Yes you get a tax break for participating. But you might put some pre-tax money into a program like this and use some post tax money to invest elsewhere. Yes, you will pay taxes on any interest you garner, or any profits you make. But which is worse: paying taxes on a capital gain, or having nothing to retire on?
6. Beyond the ignorance that has surrounded the stock market: there are a lot of crooks to blame for the current mortgage and credit meltdown. President-elect Obama should promise to put the culprits in jail. The bad guys in this deal are in the American establishment, and they make Martha Stewart’s crimes—for which she went to jail—look like a taffy pull. If President-elect Obama doesn’t make these people pay for their crimes, he will not serve a second term.
7. Those guys who win Nobel Prizes in economics don’t know any more about solving the problems of the recent world-wide economic challenges than you do. If they did, one of them, prize in hand would have knocked on the White House door, handed in his Einstein-like equation, and presto change-o all would be put right. There is no quick fix. Anyone who says there is, is someone you should definitely avoid voting for.
8. Want to help America cut the trade deficit? Stop buying goods from countries that dirty the earth’s air and water. I’m reminded of a drive I took from the airport to the center of Sao Paulo, Brazil. I think about it now because Brazil is being held up as some kind of paragon for running its cars on the ethanol it produces itself. Yes, that’s great. But take a look at the “river” beside that Sao Paulo highway one day: it is a cesspool. It is filled with sludge and refrigerators. Imagine that times about 100 in the far-more-populous country of China. Until the developing countries can show us that they have an investment plan to clean up their environments, we cannot call any trade with them “free.”
9. This is a really big recession but it is not the end of the world. Keep a clear head, tighten your belt, and forge ahead. Our parents and grandparents lived through some very bad times, from the Great Depression to World War II. They managed and so can we. What? We’re going to weep for ourselves because we can’t buy the latest flat screen television (built in China, most likely). Come on, get real. Stop thinking of money as something magical that other people know more about than you do. Stop investing it with con men and wasting it on things “everybody” has to have. We could all cut back on fast food and walk a little more. And maybe we could help out someone less fortunate while we are at it.
10. If things get really tight in your family, run for office. Members of the U.S. Congress have the best retirement and health plans in the known world. Heck, I just read today that the President (salary $400,000) and his family don’t have to pay anything for their prescription drugs. America is supposed to be a citizens’ government. Build yourself a Web Site, start raising money and go for it. Consider it your own federal relief plan.