Beating Broke

Personal Finance from the Broke Perspective

Alternative Investments: Tips and Help

By Leave a Comment

If you are a budding investor, the stock market definitely has a call to it that can’t be ignored. However, it is a fickle creature, and could betray you at the drop of a coin. To invest in the stock market, you need to have the stomach for failure. It could devastate you and even lead to depression. When the market collapsed in the early 2000s, some people actually committed suicide due to the massive losses they suffered. Alternative investments might be your answer.

Instead of risking your life and your mental stability on the stocks and bonds, you could go for a whole range of alternative investments that are safer in terms of your invested money. There is no rule that says you have to stick to investing in shares and penny stocks. In fact, there is a world of investment options out there waiting for you to pick from. Here are a couple of the favorites among expert investors.

Gold and silver

When the Recession hit, gold and silver investment spiked. Precious metals have a history of retaining their prices through thick and thin. While you shouldn’t put all your eggs in one basket, investing in mining opportunities, gold and silver as well as other precious metals is definitely one alternative way in which you can invest your funds.

P2P lending

This is a great way to invest. Take Jim and Harry. Jim gets a low interest loan from Harry. Using this loan, Jim pays off his credit card debt, which has a high interest rate. Meanwhile, Harry enjoys the payback which has a higher interest than the money in a savings account at the bank. Jim and Harry both win out in this case. (Ed. Note. Check out my experiences with Lending Club P2P Lending)

Buy a company

This doesn’t mean you should drop all your life savings in trying to buy Google. Instead, you could buy or start your own small business. It is risky, but not even close to being as risky as stock market investments. The return from an established business would actually be pretty high. It doesn’t have to be a physical business. For example, take YouTube. YouTube stars like Pewdiepie make millions of dollars off their 8 minute videos. Just like that, an online blog or a video personality would actually have a better chance of making you richer than a stock market investment.

Property

This is a little harder than your standard investment options. There is a rather steep learning curve. However, buying and renting out properties that you have bought after careful research gives you a pretty amazing return. There is a steady cash flow, and a lot of governments and state councils defer taxes for property owners because it serves to bring more people and businesses into the area. You could have a pretty positive experience with real estate investment if you do it right.

There are many other types of investment options out there for you to choose from. Stay creative and be your own boss. Don’t let the wrong decisions others make (hint: stock market) affect your savings, your investment and your future.

How to Protect Your Investments in an Unstable National Economy

By 5 Comments

The U.S. economic downturn of 2008 caused investment losses for many, leaving everyone unsure about economic instability. You may wonder how you can keep your investments safe in an unstable national economy. Educating yourself, seeking unique opportunities, avoiding staying too liquid, employing defensive stocks, keeping selling separate from buying, and considering commodities are several ways to keep your investments safe.

Paper with Financials

Image via Flickr by Andreas Poike

Educate Yourself

Proper education is critical for both the investor’s comfort level and investment success. Just as the housing bubble contributed to the Great Recession of 2008, future bubbles could threaten your investments. Recognizing the characteristics of a bubble could help you get out of risky investments. While there is no one formula for determining whether an industry is in a bubble, businesses with small revenues with large market caps should cause concern. Understand that industry bubbles have large-scale impacts on the entire economy.

Understanding other economic indicators is helpful for proper investment selection. Fisher Investments supports investor education. Their YouTube videos about investing outlooks and education offer insight on ways to make the best financial decisions.

Seek Unique Investing Opportunities

Everyone knows that diversifying your investments is a great way to protect them from volatility. However, are you considering unique opportunities? Peer-to-peer lending is unique and can provide an additional investment strategy to keep you protected during an unstable economy. These loans are higher risk because they involve unsecured loans to individuals, but the lending platforms generally bundle loans to decrease the risk of failure. Depending on the loan you choose and your risk level, these can have attractive returns.

Invest for Your Timeline

Your response to economic instability should relate directly to where you are in your investment timeline. If you are close to retirement, you are investing conservatively to protect your assets. However, if you are early in your investing, economic instability should have less bearing on your longterm goals as the ups and downs will level out over time. Continue to exercise caution in an unstable economy but be comfortable taking risks as long as you are comfortable with losing that investment. In a long-term investing strategy, you have time to recuperate any losses from risky investments.

Avoid Staying Too Liquid

In an unstable economy, keeping cash on hand might be tempting. While it is good to keep some cash, too much cash prevents you from enjoying market returns. In an unstable economy, increase cash but do so modestly. This allows for a balance between having a safety net and benefitting from market growth.

Stacks of Money

Image via Flickr by vxla

Employ Defensive Stocks

Defensive stocks are from sectors that stay consistent despite the economy. Examples of sectors with defensive stocks include healthcare, food companies, utilities, and consumer staples. If another economic downturn occurs, these stocks continue to offer growth. The downside is that these lower risk stocks offer less lucrative returns. Use a diversity model consistent with your investing goals when adding defensive stocks.

Keep Selling Separate from Buying

While common practice tells you to always buy more stocks when you sell, this is not always the best move in an unstable economy. By sticking to the rule that you should only sell when you have something else you want to buy, you may miss opportunities to sell your stocks at their best price. Instead, when your stock hits its target price, sell. You will have other opportunities to buy stocks that align best with your investing goals.

Consider Commodities

Commodities are a possible option for keeping your investments protected. If an unstable economy begins to drive up inflation, people will still need to purchase commodities. A diverse portfolio with commodities allows you to capitalize on this. Because commodities present greater risk, buy according to your investment goals.

There is no foolproof plan for keeping your investments safe during an unstable economy. Incorporate these tips into your investments so that they align with your level of risk and comfort. These steps can lead you towards a better-protected portfolio. What are some other ways to protect your investments in a shaky economy?

401(k) Loans as Recession Insurance?

By Leave a Comment

With a recession (depending on whom you ask) upon us, would it have been wise for us to have taken a loan from our 401(k)s before it started?  Bear with me here for a second.  A loan from your 401(k) is pretty simple.  You borrow the money from yourself and then repay it to the 401(k) with interest.  The interest is usually something low.  Normally, it’s a bad idea, as the market usually performs as well, if not better, than the interest on the loan.

But, if (and that’s a big if) you were able to time the market relatively well to know there was going to be a downturn, you could loan the money to yourself.  Because the money would not be in the account, it wouldn’t suffer from the loss of value in your investments.  And instead, you’d gain whatever the interest rate was that you loaned the money for.  Instead of a double digit loss, you could have a relatively decent gain.  In theory it could work.

In theory.  The catch here is that you would have to time the market correctly.  If you missed it by a day, you could cost yourself some money.  If you were totally wrong and the market rallied, you’d end up missing out on possible gains.  But, if it worked, it could work out pretty well.  In the end, the more I look at it, it’s really a form of gambling.  You’re gambling that you can time the market and save your money.

Gambling is never a safe bet when it comes to your retirement.  It’s always tempting though.  It’s important to remember that a fall like we had over the last few years almost always comes back up.  You haven’t really lost money so much as lost value.  There’s a big difference there.  And if you keep contributing, which you should, you’re buying the very same investments at a bargain price.  So, instead of trying to minimize your losses by pulling your money out, you should be increasing your investment to maximize your return when the account finally bounces back up.