I believe that Personal finance encompasses all the decisions a person might make when it comes to cash flow, budgeting, retirement, investments, multiple streams of income, and insurance protection. Every adult is bombarded with decisions to make when it comes to all these areas of life and I try to help with my thoughts and opinions on the various topics.
Brett Arends from the Wall Street Journal Personal Finance Section wrote a great article titled, “What You Can Do Right Now – Unpredictable Politics make this a tough moment to invest. Here are some sound strategies for protecting – and still growing – your money.” The article provides 10 basic tips, in his opinion 10 tips to “hold your family’s finances together in this nightmare.” Personally, I feel like the article is not made for those Americans trying to make by today, but rather, for those that are where they want to be in terms of debt and saving; however, since I have a full range of readers, I felt the need to highlight the article. Since I am physically and emotionally unable not to provide my opinion – you’ll find my “insights” in red:
1) Tax-free money market funds are paying more than 5%. This is a slam dunk. It’s an open question how long this will last. But Vanguard Tax-Exempt Money Market (VMSXX) is currently yielding about 5.67%, tax free. If you’re in a 25% tax bracket, that’s the equivalent of a taxable 7.54% interest rate.
- I would search for your state’s equivalent for instance. For instance a quick search on www.Vanguard.com allowed me to find – “Vanguard’s New York Tax Exempt Money Market” (Symbol VYFXX). It has similar returns, similar expense rations, but not only is your yield, federal income tax free, it may be State Income tax free as well (and N.Y.C. Income Tax free).
2) Inflation-protected Treasury bonds are still paying about 2% after inflation. That’s a reasonable rate of return, if not a steal. These are about the safest investments you can own, because they are paid by the federal government and the interest rate adjusts with inflation.
- I like this idea A LOT, but it should be lower on the list. A Plus! The Treasury just lowered their limits to get in on them to $100. Find all the information you want here.
3) If you invest in the stock market, think globally. This entire fiasco has hit both our nation’s economy and our credibility. It is very likely it will accelerate the shift in power and relative wealth to other countries. Meanwhile our stock market still trades at its historic premium to others. Some foreign stock markets are now much better value than Wall Street.
- I don’t know enough about global investing, but compared to his other and specific advice, I am not sure how this one works in here!
- He doesn’t provide the location of where to invest, or how do it? Seems too abstract to be in this kind of article
4) Don’t panic. This is not the time to be bailing out of the market. It’s already fallen a long way. But it’s never the wrong time to rebalance your portfolio if needed. If you’ve been taking a killing across the board, maybe you need to move investments around to make sure you’re positioned better. That may include holding some cash and bonds as well as equity mutual funds.
- I couldn’t agree more! This is so important.
5) Avoid regular, non-inflation protected Treasury bonds. The interest rates right now are absolutely terrible.
- ABSOLUTELY! They are less than federally insured savings accounts like ING and Wamu.
6) WaMu – or rather, the artist formerly known as WaMu – still has a one-year CD paying 5%. It’s available online only. It’s FDIC-insured, which means at least $100,000 is covered per depositor and in certain circumstances more. Minimum balance is $1,000. I don’t want to encourage people to sell shares and hide in cash, but for peace of mind this is a pretty good interest rate.
- I have talked about how I don’t really get this product considering they have a 4% liquid Savings account here and here.
7) Closed-end funds are on sale, again. I’m sounding like a broken record here, because this has happened several times this year. Closed-end funds are like regular mutual funds, except they only issue a fixed number of shares which you then buy or sell on the stock market. A lot of people are fed up with the volatility and are selling. But these are long-term investments. The smart move is to buy good quality closed-ends that pay big yields and whose shares are selling for well below their net asset value. Then make sure you have the funds on a dividend reinvestment plan with your broker. That means the dividends each month or quarter will buy you more shares. Over the long term, this investment approach is a winner.
- Way too much of a blanket statement for my taste – Do your due dillegence!
8) Cash, cash, cash. We could be in for a long, hard recession. I hope not, but I fear otherwise. Most families should have at least three months’ living expenses in ready cash. Bluntly, in this scenario, I’d suggest more like six months. Most Americans have no clue how bad things might – repeat, “might” – get.
- I couldn’t agree more, as soon as the wife and I finish our debt paydown we are going to increase our savings to about 6 to 9 months
9) When you start slashing your household expenses, don’t just go for the big ticket items. Take a hard look at those recurring bills as well. A $60 a month cell phone plan you hardly use isn’t really costing you $60. It’s costing you $720 a year. It all counts.
- This should be number 1 in this list! This is probably the most useful and inspiring advice for 99.9% of Americans right now.
10) If you can – and that’s a big if in this environment- take another look at refinancing your mortgage. Long-term rates just fell again. You can get conforming 30-year fixed loans for less than 6% interest. Not only can you save money by cutting your interest rates: This can also be a useful source of extra cash. If you wait till you really need it, you may not be able to get it.
- Before refinancing you need to do the math necessary to determine your cross over point with actually saving money vs. closing costs associated a refinance. Luckily, there are calculators for such a thing at www.DinkyTown.com