The Great Depression

[kass_rants]

Okay. Listen up! I don't care what the media has been screaming about. This is NOT another Great Depression. I'm going to explain to you why.

Kass's Top Three Reasons Why This is Not Another Great DepressionThe Great Depression began with the crash of the stock market in October 1929 (the crashes are always in October...). Many investors

Comments

[kass_rants]

When I worked on Wall Street, we were debating whether the stock market would ever break 3000. Many people thought it wouldn't. It would get close and then drop, get close and then drop. And then we had that little "correction" in 1989 on my birthday of all the bloody things...

Let me tell you something about the stock market -- as long as the businesses in which you have purchased stock don't go out of business, you have nothing to fear. They will go up again. Every 20 years, the stock market doubles, and that includes the 20 years that included the 1929 crash and the 1987 crash. As long as companies trade on the stock exchange, it will go up again.

If you want to invest in the stock market, do it by dollar cost averaging in a stock-heavy mutual fund. This means you put away the same amount from your paycheck regardless of where the market is. That means that when prices are low (like now), your investment buy more shares. And then when they go up, you have more. It is the only way to invest for the long term because a drop in the market will only benefit you.

[kateslover]

I used dollar cost averaging for years. My mutual funds have dropped precipitously of late (they're worth about half what they were last year), but I don't fear they'll go out of business. Unfortunately, now that I'm retired I don't have the capital to continue to invest while the price is down!

[kass_rants]

But at least you are smart and not selling what you have. It will come back. It always comes back.

[kateslover]

With my 20-20 hindsight I'm wishing I'd sold one of them off last year, but sell it now? Oh no - I merely LOOK dumb! *G*

Now if I could just sell my house in Virgina, THEN I'd enough left over each month go back to investing, albeit on a much smaller scale than previously. I had to refinance to pay my ex her half, so I'm stuck with a mortgage on an empty house.

OK, I'm done whingeing now...

[kass_rants]

Yeah. Hopefully the Fed's extension of loans to the credit markets will build bank confidence quickly and they'll get back to making mortgages again. Then your house will sell and all will be well.

[bantiarna]

There has already been news reports (American media though) this morning of mortgage apps and loans processing being up due to houses prices being so low. So we might start to see a turn around with this soon. Houses are still selling in my neighbhorhood. People I know are still closing on houses and getting loans.

[kass_rants]

Good! Good!

Banks are in the business of making loans. But they are easily frightened, spooky creatures and this thing has thrown them all for a loop. If they are given the confidence that their mortgagees will pay them and not default, they will gladly lend them money.

In England, the Central Bank is guarantying mortgages. So while it's not lending money, it is putting a safety net under the banks in case of default. And that's all the bank needs to give it the confidence to make loans.

I'm hoping this whole experience teaches them a lesson and mortgages go back to being only offered to the people who can afford them.

[faireraven]

*bingo*

Before I left on vacation, one of my coworkers asked me if I thought he should stop putting money into his 401K (ever since I actually revealed I know *something* about 401K status and what some of the rules are, people seem to come to me for financial advice. Having been part of Primerica at some point might have something to do with that).

I asked him if he was insane.

He's a sales guy. He works based on commissions, so I hate to say it, his understanding of money is "the harder I bust my balls, the more I get", he doesn't really understand money itself.

I told him that now was the perfect time to get *into* the market. If he wanted to take his existing 401K funds and put them into more stable value funds rather than growth funds, it would only make sense if he was retireing in the next five years (which since he's 26, is highly unlikely). I told him flat out that unless the entire stock market plunged to zero in the next three months, putting money in *now* was going to be the best thing he could do for himself.

I still don't think he believed me.

[kass_rants]

Aboslutely! A 26-year-old should take all of his money and throw it into stock-heavy mutual funds like there is no tomorrow. Nothing makes money over the long term like stocks. Nothing. And mutual funds are managed by fund managers who pick the most stable and long-term stocks in which to invest (and they switch when it makes the most sense).

[faireraven]

Yeah, my energy fund went gangbusters in the last three years. Almost tripled.

I lost a chunk recently. It went back down to about double the original.

Okay, so it sank. It'll go back up. It's not "money" until I take it out of the market anyways, and energy will always be needed. If I don't take it out in the next year or two, I will be fine. Hell, if I took it out today (which would be stupid), I'd still be fine, because I'd still have more money than I did when I put it in.

Just about everything I have is in mutual funds of some kind or another. 401K's are nothing but funds anyways. It makes long term sense to let someone else manage my money, as long as they have proven themselves to be right more often than not (everyone's wrong some time, just play the averages). And I look for the "right" over the 10 year term, not the two year. Someone may have been right and grown something 30% two years ago, but negative 20% this year. That's not someone I want to go with. On the other hand, if I see someone who did 16% two years ago and 14% this year, I'm far more likely to go with him. Proven track records and all that.

Okay, even my money manager asked me at one point what I need him for... But then again, he's a friend of mine. :) Between his advice and my dad's advice (dad reads MorningStar like it's his new religion), I follow my instincts, and do okay over the long haul.

I usually tend to agree with your advice, so I figure if I'm already doing what you say I should be, I'm not doing badly. :)