Some Perspective on the Markets/ Economy

With all the crap that is going on these days in the financial markets, I figured I would post something to give you, my loyal readers, my perspective on things. As with anything, nobody is ever right 100% of the time on everything, but I think these assumptions are at least in the ballpark.

1) The bailout/rescue bill. I think this bill will help the economy down the road, but it isn't going to help in the near-term. While I applaud Paulson for the effort, this doesn't magically solve all our problems today. As much as we love instant gratification in our country, we will need some patience on this one. I don't see this thing up-and-running at full speed for a few months.....meaning early 2009. Until then, things will probably not be getting better.

2) The stock market. Short term(meaning Monday) I think we are going to see another really bad day. I think we will see the Dow Jones go under 10,000 in the next week or two. More companies will go under in the near future. But remember one thing on the stock market...the market always turns around before the economy does...ALWAYS!

3) Credit. If you live on credit, you better learn how to tighten your belt. The days of easy borrowing is gone for a while. While I am not sure how bad it will get, don't plan on borrowing except for the major ticket items like cars and houses. Everyone had a big credit party the last 5 years and the hangover is finally here....and it's looking like a bad hangover.

4) Investments. First of all, DO NOT panic and do something stupid like pull your money out of the bank and put it under the mattress. The world is not going to end tomorrow. The banking system isn't going to fail and we are not going to end up resembling a third world country. If you are young (meaning you have at least 10 year to retirement) do not pull all your money out of stocks and go into cash in your 401k right now. I know this seems like a smart thing to do, but it isn't. Here's what I mean....

If you move to cash, you are going to get what...2% per year on your cash? Lets say this is a bad slowdown and it takes two years for the market to turn around. You will get a 4% return in cash over two years. You might very well lose more money by leaving things as they are in stocks. BUT...when things turn around, it is not unusual to have a 20% move up in the stock market in a recovery. This up move gets you right back on track to your long-term goals. Plus...you are buying lots of shares of those mutual funds at cheap prices now. Remember...you don't need this money today...you need it later so chill out and let things go.

If you are closer to retirement, also do not panic. Just start adding your monthly 401k contributions into bond funds now instead of stock funds. This will weight you more conservatively as you approach retirement in the next few years. If you are already retired, you probably don't (or shouldn't) have all your money in stocks. Everyone is different, but a 50/50 mix of stock and bonds is a good starting point for someone entering retirement right now.

REMEMBER...the world is not going to end next week...have a cool head and just ride things out. If you feel like you need more security, add a little more you your savings account or money market just to have that extra cushion. If your 401k balance freaks you out, just don't look at it...put it right in the drawer when it shows up in the next few weeks, cause it's gonna be an ugly one.

DISCLAIMER: My posting wasn't meant to freak anyone out, I just want to make sure everyone realizes something...things aren't going to turn around immediately now that the rescue bill has passed. There will be some tough times coming for everyone, but things will improve and life will go on in the end. And (hopefully) people will learn from their mistakes and not repeat them...