Mar

Are You Getting Out of The Market?

By Emily

I promised I’d keep you up to date on the stock market insights passed along from my Father who spend a good deal of his time immersed in the financial news of the day. And there is some heated political commentary here which I don’t apologize for since I think the misguided “fairness” policies of the Obama regime are in large part responsible for a lot of the pessimism in the stock market now.

My parents are so upset that my Dad really shocked me when he told me last night that he was stabilizing his financial position by getting SIGNIFICANTLY out of the stock market, selling shares at a loss, and going into secure assets like cash and treasury bonds.

OUCH!

He suggested that he is concerned that the stock market will continue to do badly for the next 2-5 years or more and that the recession that we’re currently in will turn to a depression shortly.

This might be a good time for you to review one of my most popular posts – What to invest in during a recession.

Given that Ben and I are much earlier in our investing careers and not approaching a retirement horizon as my baby-boomer parents are, he admitted that it might make more sense for Ben and me to not SELL in order to increase our cash position, but to continue to stock pile cash, rather than dollar-cost-averaging into the market as it continues the Obama-fueled free fall.

Assuming the market has another few bad years ahead of it, we don’t need to be in a rush to continue buying in.

Take away lesson – look for security in cash, government bonds, and precious metals.

Inflation and Deflation

Also, he mentioned that we face both inflationary and deflationary risk.

Deflation will come in the short term – this is caused by economic contractions in which people lose their jobs and can not afford to pay as much for things like houses, cars, food, recreation, etc. Deflation will cause the cost of goods to go down. This is bad for businesses and people who hold real estate, as the prices they can charge for goods and services will decrease.

Inflation will come over a longer period and Dad thinks it is somewhat inevitable at this point. Inflation means that the currency loses it’s value and spending power. Milk used to cost $3 a gallon and now it costs $4. This erosion of the dollar will massacre baby boomers’ retirement funds. (This is unfortunate for Obama’s so-called “Investor Class” since it punishes the people who have worked hard and saved and done the responsible thing all their lives…) Anyway, inflation will be one of the few “tools” that the government has to dig us out of this mess with.

When inflation strikes, leverage can be your friend (the opposite is true during Deflationary economies).

Bottom Line: Cash Now, Buy Later

It’s an ugly time in the US economy right now. The smart money is on storing up cash until “the bottom” – whenever that might be – and keeping an eye out for a turn around, both in stocks and real estate.

For the stock market, the news today said that we’d know we were close to the bottom when the market didn’t keep having these giant downward slides like it has for the last couple days, and we started to see stronger interest in buying into the market.

The real estate market is a little slower moving and even easier to time the bottoms on. There’s some great information about knowing when to buy, sell and hold real estate here.

Family Budget Best Bets: Keep your job, look for extra ways to earn income – such as babysitting, lawn mowing, delivering pizza, starting a business, etc. Then sock it away! According to my friends in MLMs, network marketing or “direct selling” as it’s called now, does well during a recession because people are willing to put the time and energy into making a second stream of income during lean times.

Good luck!

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