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PRESERVE YOUR MONEY - LESSONS OF MID-OCTOBER 2008
October 18, 2008
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What about Stocks and Mutual Funds?
Is now the right time to buy into mutual funds, or to buy stocks?  The answer is – probably not … but really it depends on WHICH mutual fund or stock you are talking about.  I personally am not buying anything in either category right now … but I think if you do decide to buy a stock or mutual fund, you have to consider the state of the economy, and what is likely to do better given that we are in a recession (or possibly entering a depression).   In other words, you cannot look at the past performance of any stock or mutual fund – because the past 3 months, 6 months, year, five years … everything that happened in those timeframes is essentially now completely irrelevant!   You have to instead think about what is likely to do well in a recession … you have to ask yourself “what will people purchase regardless of the state of the economy?”   The answers are consumer non-durables … tobacco, booze, detergent, toothpaste, canned food – stuff like that.   You can also guess that large discount store chains would likely do well … like Walmart, Costco, etc.   So purchasing stocks or mutual funds that hold stocks like those are probably going to do better than others.

Watch for Great Deals
At some point, there will be some obviously great bargains out there – in terms of stocks, mutual funds, bonds, and real estate.   I don’t think TODAY is the day to find those bargains … but I believe that such bargains are definitely not too far off.   By holding a significant chunk of your assets in cash or near-cash, you are well-positioned to take advantage of any sudden obviously great opportunities that pop up.  And often times those sudden buy opportunities are not available for very long … maybe only one day or two (like in the case of the California 8-month RANS bonds which were made available to individual investors for only two business days).  

My key message to you is – don’t follow the herd.  Be your own financial boss … be safe yet diversified with your money … and keep your eyes open for bargains that are certainly coming our way over the next twelve to eighteen months.

My own portfolio (including what is in my 401K) currently looks like this:

Cash/Near Cash                                    63%  (holding steady)
Stocks/Stock-based Mutual Funds          17%  (dropping like a rock)
Real Estate Equity                                 16%  (dropping)
Personal Property                                    4%


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