The recent economic issues our country has faced have left many scratching their heads about whether or not investing their money is the right thing to do. Or, should it just be buried away somewhere until the financial storm blows over?
Here are a few things to consider when investing during hard economic times. And, you will note that there are still ways to invest smartly, just remember research and a thorough understanding of what you are getting yourself into is now more important than ever.
A Look at the Past for Hope in the Future
It is easy to get so focused on what is happening today with the economy and forget many of the financial storms the US economy has weathered, even in the last 100 years.
For a review, here is what our economy has pulled through and become much stronger as a result in the last 100 years:
• Great Depression of the 1930’s
• World War I & World War II
• Rapid inflation of the 1980’s
Despite all of these incredible challenges of the 20th century, the standard of living dramatically increased for Americans during this same time span. Also, the DOW Jones Industrial, the most widely followed stock market index in the world, rose from 66 to 11,497 during this same time span. It was actually during the tough economic times the great fortunes were made.
Recessions Provide a Time to Invest Inexpensively
Many experts say a recession can be the best time possible to begin investing because asset prices are at rock bottom lows. You can buy stocks, bonds, mutual funds, real estate, or other types of investments for pennies on the dollar from what you could just a few years back. Many investors are forced to dump their assets. This allows you, the new investor, to pick up some great deals you might not be able to afford during normal economic times.
As with any type of investing, this takes courage. Many times your portfolio will fall even lower after the investment is made. To avoid a financial disaster, experts recommend you go into the market through a “dollar cost averaging,” a technique designed to reduce market risk, and not put all of your money in at once.
Build a Healthy Overall Portfolio
It is more important than ever to build a strong overall portfolio to maximize your gains and minimize your risks. This can take years and should be done with ample research.
Although volumes could be written about this, to get your portfolio as healthy and diverse as possible you should follow these basic steps:
• Contribute the maximum amount to your employer’s 401k
• Pay off (or greatly reduce ) your high interest debts
• Fund a ROTH IRA
• Build a 6 month emergency fund
• Pursue several investment options (stocks, bonds, mutual funds, CDs, etc)
• Invest in yourself (education, develop skills, start a new business)
• Save for your child’s education.
Stay the Course
Ask any boat captain and they will tell you they’ve had to weather many a storm. The best they can do is just to head in the direction they want to go and wait for the storm to die down. The same is true when it comes to investing. When you have a plan in place, follow it.
If you already have a plan in place for your investments from several years back, continue to follow it. Wealth is not built in a day. If you are just now beginning to invest, don’t let any financial woes our country is experiencing deter you from your goals. Start with a good plan in place and know the great economic times of the past will eventually return and we will be financially stronger as a result of the hard times.
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