Random Ramblings

July 24, 2008

Investment options in a down economy

Filed under: finance — Tags: — camotop @ 12:58 pm

With the market and most of my portfolio down dramatically compared to months and years ago, I wonder what I should do ?

1. Do nothing, wait for things to recover.

I do not like that because I believe there are opportunities.Also with more money in the bank, it’ll be more tempting to spend it.

It would be a good time to build up my emergency fund, because in a down economy changes of losing my job are greater, finding a new job will be harder, and new salary would likely be lower.

2. Do not invest in the market, pay off debt.

With the uncertainty of the market, if I except things will fall further, perhaps I can pay of some of the higher-interest loan. That saves money on the interest in the long run, is a safe investment.

Someone told me that “Cash is King” so I would have to be careful about paying off too much too quickly, because I will not be able to get that money out if I need it for investments or emergencies.

3. Invest in index or stock funds as they are at multi-month or year lows.

We cannot time the market, but when things are down this much, we do expect that sooner or later it will recover, right ?

I think I will act on a combination of all three. I’ll grow my emergency fund from 6 to 9 months, I’ll increase my loan payments by 50% and I will use the remainder to scoop up some funds that are at lows. We’ll review and reconsider by the end of the year.

When the economy is healthier, I will reduce loan payments again, no longer grow my emergency fund, and invest more in stocks and funds.

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