Investing During Tough Economic Times

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

• Buy a home
• 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.

Study the Habits of the Rich

Habits make up 90% of what we do every day. It only makes sense that good habits lead to good things and bad habits lead to less than desirable outcomes. The habits the wealthy establish in their financial practices not only help them acquire wealth, but also allow them to keep the wealth they have. They have a few habits in common that keep them in the upper elite when it comes to money.

Habit #1: Pay Yourself First & Save/Invest The Money

Those who have a considerable amount of money know they are the reason they have the money in the first place. As a result, they make sure they are taken care of in the long run so they can continue to earn more money.

It may seem there is never quite enough money to allot some for yourself. However, by taking money out first and investing it in a place where it can earn passive income for you (in the form of interest, real estate, or whatever else you choose), you are ultimately making more money for yourself for years to come. The best strategy is to take 10% off the top of your earnings and reinvest it into something that allows the money to grow even more.

Saving money is not as much about accumulating a large amount of money quickly, it is more about getting into the habit of saving money and watching it build over time.

Habit #2: Become Frugal

We often associate the term “frugal” with people who deny themselves anything and everything to save money. This doesn’t have to be the case, though. Those who are smart with their frugality simply cut costs in areas that aren’t as important as other areas.

For example, maybe buying the name brand of every food product is not as important to you as taking an annual family vacation. Therefore, you should buy the cheaper brands of food so you can spend your money on something that’s really important to you: the family vacation.

Frugality is a matter of prioritizing your expenses. Analyze each expense and make sure you are spending your hard earned money on the things that are truly important and help you reach your long term goals.

Habit #3: Look After Your Business

Recognize your business is the way you make money. Treat it with respect. Even if you don’t like your job, you should recognize the fact it pays your bills and allows you to save for the future.

Make sure you have a vision for where you want your business to go. This gives you the momentum to move further along to your ultimate goals. Having these anticipated milestones gives you a target to aim for and reminds you of exactly what you are doing with your business each day.

Habit #4: Take Educated Risks

Making money can be a risky business, but the wealthy recognize the risk factors that are involved to achieve their financial objectives. The difference between someone who is just a risk taker and someone who takes educated risks is the ability to recognize opportunities that have an upside potential that far outweighs the potential loss.

Learning to take educated risks comes as a result of studying situations closely and then having confidence in your ability to judge correctly. Do as much research as possible to understand the exact risks, as well as the large potential for payoff. Then take the risk.

Habit #5: Give Back

One great thing about money is the ability to help others with it. In addition, giving back follows the principle: the more you give, the more you receive. How is this possible? Most believe the more we give away the less we have. Instead, giving back creates a bit of a paradoxical effect.

Wealthy businessman Junior Murchison once said, “Money is like manure, if you spread it around it does a lot of good. But if you pile it up in one place, it stinks.” Giving money away creates a bit of good karma. It also reminds your subconscious there is enough money for everything. A poverty mindset seeks to hold on to every bit of money possible, a wealthy mindset seeks to give it away and reap those unique rewards.

Habit #6: Invest in Yourself

Millionaires make investments on themselves. Why? They recognize the fact that by making themselves better they increase their potential for income. They often seek out opportunities to learn and grow as a human and as a businessman.

When you are open to learning new information in this rapidly changing economy, you understand someone is doing things better than you. This leaves plenty of room for growth. This can also be applied in your network of peers. If you see someone who does something better than you, ask them to teach you. The potential of this investment is multiplied many times over.

While the wealthy may not “have it all figured out,” we can learn a considerable amount simply by studying the habits they use when it comes to their money. By utilizing these habits in our own life, we can also potentially find a path to great financial wealth.

Saving for Retirement – 21st Century Style

As with many things in society today, the concept of retirement planning is changing dramatically from what it was just 20 years ago. With the potential demise of social security in the future and other retirement options not as practical as they once were, there are countless questions about what is the best way to plan for retirement today.

Retirement Planning – Then & Now

In the not so distant past, financial advisors told us to rely on the “3 legged stool” when looking to retirement planning. This included:

• Defined Benefit Pension

• Personal Savings
• Social Security

You were encouraged never to rely too heavily on one of these 3 legs. But, today two of these three legs, social security and pensions, are not what they once were. And the third leg, savings, is more difficult than ever before. It’s widely reported that the social security may well be in trouble. Pensions have also sharply declined for many people. This require us to re-think how we will plan for retirement.

Retirement Planning Today: What are Your Demographics and Lifestyle?

There is no longer a “one size fits all” approach to retirement planning. How you plan is greatly determined by who you are and how you want to live during retirement.

While life expectancies continue to rise, so do early retirements. These early out’s may be due to health or layoffs. This means you may have a shorter working career and live longer.

Couple that with a generation that doesn’t want to go without much. In years past, retirement frequently equaled a lower income and less ability to live how they had during the working years. Our society has changed so dramatically, many worry they will be unable to maintain their current lifestyle. This can lead to other complicated issues like massive debt if a retiree is not careful.

While social security and pension plans should still be considered an important part of retirement planning, more emphasis should be placed on personal savings and ROTH IRAs.

Save, Save, Save!

Saving for retirement is about much more than just putting money in the bank and leaving it there for retirement. Saving must be strategically done to maximize the benefits. This can be done through regular IRAs, 401(k) plans, 403(b) plans, SEP-IRA, or any other means possible to make sure the money you save is making as much back as possible. When you get a raise in your income, raise your giving to your savings plan, as well. You should also put in as much as possible into ROTH IRAs since the amount is not taxed. Saving money in the most intelligent way possible is the key to saving for retirement.

Consider Tomorrow Today

There is a saying that demonstrates the importance of never forgetting your retirement goals, even today. “If you’re willing to what others won’t for a year, you can do for a lifetime what others can’t.”

What does this saying have to do with saving for your retirement savings? A lot. If you are willing to give up some luxuries today and invest that money in your future, you can live better than others later for the price of your sacrifice. Giving up something today for something better tomorrow can be applied to many areas of your life, but it also applies to your retirement.

There is not one approach to save for retirement. It’s important to note, however, that some of the traditional methods of saving for tomorrow are not as sufficient as they once were. By taking a creative approach and looking at saving what you can today, tomorrow will be a much brighter day.