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Learn About Money When...?
By Miata Edoga of Abundance Bound, Inc
Panic! Run for your lives! The world is collapsing! In the last year, the housing market has collapsed, taking with it the stock market. Oil prices have exploded, banks are showing record losses (how about $10 Billion for a quarter anyone?), and going out of business left, right and center, and, basically, lots of people’s money is going down the toilet. So now is not exactly the best time to be learning about one’s finances, right. WRONG!! There is a great quote by Warren Buffet (Multi-Billionaire, Philanthropist and strong candidate for greatest investor ever) that says: “Be fearful when others are greedy, and only be greedy when others are fearful”. What happens when there is a big economic slump is that people panic. Sometimes this is with good reason: when it is easy to borrow, people tend to get in over their heads with debt. Combine that with a housing market bubble, and suddenly that house you’re making payments on is worth 25%less than you paid for it. Ouch. Or those banking stocks that were being pumped by brokers collapsed under the weight of bad loans. Ouch again. Or... but you get the picture. The trick to riding this all out, however, is to keep ones head, and not follow the herd. Take stocks as an example. Let’s say you bought a solid company when it was at $25. Things happen, we hit an economic downturn, and suddenly that same stock is worth $15. Oh no. We’ve lost almost half our money. Quick, sell before we lose any more... ...Or not. If the company is strong, then it might not be its specific results that have caused its down turn, but a more general tide of poor performance across the country. If this is the case, then all selling does is make real the money you have so far only lost on paper. Combine this with the fact that you should be looking at holding stocks for at least the 3-5 year range, and with luck you won’t make any quick decisions that will loose you money. Everything goes in cycles, so instead of loosing ones head (and money at the same time), remember the old maxim: “This too shall pass” And keep on keeping on. The other thing, of course, is that when everything is down is actually a perfect time to be looking at putting money into the market, a house, or other currently depressed investment vehicle. I remember during the last economic downturn, in early 2002, I had just put my first real money into the stock market. A friend said to me “Why on earth would you be buying now? Everything is down?” I looked at him and said “Exactly”. We made over 50% return on that money in 2 years. Not that we should be running out there and jumping into things willy-nilly. Random buying will make you just as broke as panic selling. But now is the time to seriously look at your financial situation. As opposed to fleeing all things financial in the coming months with the rest of the herd, swim up stream a little. Learn how to handle your debt properly, so that it isn’t hanging over you any more. Start a high interest wealth account so that you can have some money to start investing with in the next year. Set up your finances so that you are maximizing your tax deductions. Learn about how to handle money now, so that when things turn around (which they will) you are way ahead of the curve, instead of behind it.
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