When times turn bad and investing becomes more risky than usual, it's hard to gauge what you should do. You may be in a position where you've managed to make money and accumulate wealth, but you've seen many of those financial vehicles that have been so dependable start to lose their money-generating power or perhaps even die out entirely.
With everyone taking hits, losing cash and the only wealth being the wealth of bad economic news what should you do? Do you simply go liquid, turning everything into cash and letting your money sit fallow? The idea in doing so being at least you're preserving what you have.
That's not a good idea due to the fact that inflation alone will make that cash worth less than it had been. You want to be somewhere between placing your cash in high risk, high volume investments and putting your money under your mattress. Here are five things that you can do to utilize your money when the economy gets shaky.
Gauge Your Needs
Determine what your short-term and long-term needs are when it comes to your cash and investments. You're in a very different place then you were five to seven years ago due the major shifts in the economy. You're going to need a new plan with a new focus on how you use your cash.
That means understanding where you are now and where you want to be in five and ten years. It's going to be hard to make big profits quickly at this point. The main thing to do is to see what percentage of your money you'd like to hold in low-risk investments and what percentage you're able to invest in those that offer a bit more risk and possibly a higher return.
Analyze Your Current Investments
Don't just pull all of your cash out of everything. You need to take some time to analyze your current investments. It's a good idea to keep your cash in stocks and securities that are doing well. That is those that are still showing a healthy return, are well funded and displaying leadership in their field or area.
Cash-in on those companies or investments that are bleeding, that are on unsure ground or that are crowded with doubt. There are never any sure things but there are certainly signs when things are less-than-sure or headed towards a bad turn or disaster.
FDIC Insured Accounts
The safest place to put your money is in a bank insured by the Federal Deposit Insurance Corporation (FDIC) and in either interest bearing checking or saving accounts. The FDIC insures individuals for up to $250,000 per bank and per account. Thus, if you have $200,000 in a checking account and $250,000 in a savings account all of your money is protected by the FDIC.
Put cash that you'll need or want easy access to into these accounts. Shop around and look for banks that offer the highest returns and best deals. In a bad economy, banks will tend to be competitive as they try to attract as much business as possible.
Certificates of Deposit
If you have cash that you can invest for a longer period of time, then you might want to consider Certificates of Deposit (CD). With a CD, you're going to have to tie your cash up for at least three months and to get a better return it will be longer.
CDs are very safe investments and, once again, are FDIC insured. You'll be guaranteed a rate of return and that return will be higher than you get from a saving or checking account. The reason it is higher is you're allowing the bank access to your money for an extended period of time.
The longer you allow the bank to use your money, the higher your rate of return. Thus, a one-year CD offers a higher return than a six-month CD.
The 401K
If your employer has a 401K, this is a great time to invest in it. These are very safe investments and often employers will offer a match. Thus if you contribute $100 per pay period and your employer provides a 50% match, you're investing and making $50 more than if you invested in something on your own.
That match can really add up as your investment earns interest over time. Think of it this way, if your 401K earns 10% would you rather make $10 ($100) on your investment or $15 ($150) on it? The 401K with an employer match is a great deal.
Don't Be Rash
The important thing is to study your financial situation carefully and to make prudent decisions. This is not the time to be engaging in high-risk investments or to be putting a major amount of your cash in unsure things.
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