|
Investing
Stock Investing
During Market Turbulence
As of July 2009 the stock market is
still well below the highs recorded in
2007. The stock market has rebounded
noticeably from its March 2009 lows.
Based on the current upturn toward
partial recovery, you might think we are
heading toward better times financially
and that now would be the time to start
investing again.
The fact is, we do not know. After all,
the overall economy isn't exactly
stable. While housing sales are
increasing on a monthly basis, the
overall picture shows that sales are
still below year-ago levels. The economy
has suffered in many ways, unemployment
being just one way (a most important
indicator) and was last reported at
around 9.5%, which is the worst it has
been in more than 25 years. You may be
thinking "buy low and sell high" and
that this is the time to invest. But
that doesn't necessarily mean you should
just call your broker tomorrow and start
buying as many stocks, bonds and mutual
funds as you can.
The employment situation reported in
June 2009 by the
Bureau of Labor
Statistics shows that in June,
unemployment rates for the major worker
groups-adult men (10.0 percent), adult
women (7.6 percent), teenagers (24.0
percent), whites (8.7 percent), blacks
(14.7 percent), and Hispanics (12.2
percent)-showed little change. The
unemployment rate for Asians was 8.2
percent, not seasonally adjusted. So
obviously there are less persons who can
probably invest anything at this time.
Why not?
If your financial situation isn't in
good shape, how can you know if you can
invest at all? After all, you could lose
your job, be going through a divorce,
have health issues or have to care for
parents, etc. There are more and more
companies that are going through or will
face financial problems, which may
affect you directly and you may become
one of the unemployed. If that or some
other financial disaster forces you to
sell an investment, you could end up
taking a loss. At a time when you really
needed the money, selling at a loss
could have a tremendous impact on your
overall portfolio.
That being said, even following the
recent market downturn, investing is
still the recognized path to building
wealth over the long term. Time is the
most important asset you have when it
comes to investing. Even a small amount
of cash, regularly and prudently
invested for a long period of time, can
go a long way toward assuring you can
retire comfortably. The earlier in life
that you start investing, the more time
you have to build the nest egg you
deserve from your hard work.
Strike the right balance
There is no sure way to strike a
financial balance. You have to know how
much debt is all right for you to have,
and how much money you may need in an
emergency before you can be comfortable
investing at all. It's a difficult
question to answer, but you need to
answer it, especially since we are still
in tough economic times. There are no
set answers, but here are some good
guidelines to consider:
It's fine to have some debt, if it's the
right kind. Debt that's:
* at a low interest rate,
* attached to property or an education
that's worth more than you owe on it,
and
* if possible, tax-advantaged... is
generally acceptable.
That means a traditional mortgage is
probably good to keep, as are many
student loans. Your car loan may be
acceptable too (though it's not
tax-advantaged), as long as you're not
in an "upside down" (meaning you owe
more than it is worth) situation, and
have low-interest financing. You should
try diligently to get rid of most other
debts. The money that you pay in
servicing these other debts, no matter
what they are or how they were
accumulated, is now money you cannot use
to either invest or spend on anything
else you may really need. The interest
you pay makes it more difficult to get
out of debt.
Is it possible to save too much?
We are all aware that it is very
important to have an emergency fund or
liquid assets set aside for a rainy day.
That way, a job loss or other unexpected
emergency won't have the considerable
impact of forcing you to liquidate your
portfolio just to make ends meet. Having
too much cash, on the other hand, can
create a problem. Having cash on hand
that does not have to be used to meet
financial demands should be invested.
Having this cash available for a period
of time is time that could be better
spent investing. Building up an
emergency fund and having a retirement
plan is the best way to use that cash.
You also will miss out on the long-term
growth potential of your investments.
That's why the general rule of thumb is
to have three to six months of living
expenses put away before you should even
consider investing. At that level, you
have enough saved to handle most of the
situations you will undoubtedly
experience, without investing too much
time in building cash.
Build your cash savings foundation,
and then invest
In spite of the market's periodic ups
and downs, over the long run investing
is still a critical part of the journey
of today and the path to retirement.
Investing while in the midst of these
fluctuations is hard enough to do on its
own, but without the right foundation
it's very difficult indeed.
Make certain that you have all of
your finances in order, especially
maintain an awareness of all of your
assets and liabilities so that you can
determine how much you feel comfortable
in investing.
|
