I have been getting lots of telephone calls about the current state of the stock market. If you are a certain age, hopefully you have a percentage of your retirement / savings in cash. The closer you are to retirement, the more cash you should hold.
A large part of my emergency funds were in a mutual fund I have had for almost 20 years. I started off very carefully, with a GNMA account that paid 6% in dividends. From $1500 I went to $3600. Then, to my shame, came the greed factor. I looked up the accounts in this mutual fund, picked the second highest flyer, and transferred my funds into that account. Verrrry scientific right?
Woe is me! That was in 2000 - so you know what happened to my money....down the paper drain it went - to $1800. But I perservered, and last year my $1800 was $11,000! WooHoo! I could do no wrong. Sorry.... but the first of this year my account was $9,000, and I sold it last week at $7,000. But it was a good thing I did, because if I would have held on, it would have dropped another $1,000 in ONE WEEK.
I felt kind of bad because I had that account since Mom died, so I felt like I was loosing a friend. But all that friend really wanted was my money! So I'm a little poorer, but smarter.
Here is the few bits & pieces of (hopefully accurate) information I can pass on:
If it goes up, it will come down. Simple - Newton's Law right? So whether it is real estate, internet stock or gold, the law remains the same. Ride the wave UP, not down. If your hairdresser is talking about it - get out!
Always have a cash fund - even if this is in a dreary .0001% return at your local bank. We are all supposed to have 6 months salary in our emergency fund.
Luckily, last year I had a hot stock, and made enough over my emergency fund to pay for my driveway. This year I'm not holding my breath - although in a few months may be a good time to "bottom feed" stock purchases. I read a few years ago, buy KMart stock - I thought right - at $1.43 a share, what a deal. Unfortunately, I did not heed that information, because if was soon well over $100 per share.
Mutual funds are NOT FDIC insured. Neither are money market accounts held at brokerage houses (the former Merrill Lynch, the former Lehman Brothers - you get my drift right?)
Cd's held at local banks are insured for $100,000 - unless it is an IRA cd. Those are insured for $250,000.
The FDIC rules are complicated - of course - who wrote them? But it is possible to have $100,000 in your name, $100,000 in your spouses name, and I'm not sure the amount in your joint names at a FDIC insured bank - not your local brokerage house. Check then check again!
Shop, shop, shop rates right now. You have to shop daily. But do consider cd's because even if you are only making 3%, you aren't loosing 20%. And did I mention to make sure it is FDIC insured?
I have been changing all my allocations in my retirement accounts to bonds and money market accounts. I can't change them fast enough - today I lost over 1%. At my age, I don't want to loose a penny.
Another bit of advice is to keep your money diversified - that means don't throw all of your money into a big house, or gold, a coffee plantation or internet stock. I have four houses, cash, stocks, bonds, and two dogs. Staying diversified means you spread your risk over several different types of investments. The bad thing is I have to feed the dogs every single day!
Lastly, this isn't a time to be sentimental. Just because a stock made you bucko bucks before, it will turn around and eat your panties tomorrow!
So dig in and do what American's do best - perservere! No more lattes, keep your nose clean at work, be productive, but always remember to keep a smile in your heart, a tune in your head, and your dancing shoes close by!