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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3 Comments »

  1. Hello,

    In my opinion, before deciding what to do with your spare cash, you have to be very clear of your risk tolerance and investment time frame.

    1. If you are a pure investor with buy-and-hold strategy, then yes I feel that this would be a very wise choice. Right now, with volatile markets and down-trending stock markets, you could wait it out before heading back in again. After all there will be many bargains to pick from.

    2. Cash is indeed king. However, you might want to identify if your debts are good or bad before paying them off. Good debts, like mortgages, free up the rest of your money for other purposes. Bad debts like car loans are debts you won’t want to owe for too long.

    3. Funds are an option as well. There are funds which profit from a bear market, so you could take time and check these out.

    Comment by Benedict — July 24, 2008 @ 3:54 pm

  2. Thanks for that feedback, Benedict.
    1. Yes, I’m definitely a buy-and-hold investor.
    2. I am bad debt free, so would use the cash toward mortgage payments.
    3. Would you have any recommendations for funds that profit from a bear market ?

    Comment by camotop — July 24, 2008 @ 5:52 pm

  3. Funds are not my specialty, but an example I can give you would be this company called Proshares. They have “Short Proshares” funds which as the adjective implies, profit from market downturns.

    Comment by Benedict — July 25, 2008 @ 7:26 am


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