The Art of Business
Can’t Bear it Any More? What to do with your money

We haven’t seen the end of the Bear.
How did that Bull just disappear when the bubble popped?
The Bear is going back to sleep.

The real question is: What to do with your money in a market like this one? And when will it get better? It certainly gives one pause, and is definitely the source of a whole lot of disagreement.

Anyone who tells you they know for sure whether we’ve seen the bottom or not is blowing smoke; only those with a fully-functional crystal ball can be sure. Even Alan Greenspan doesn’t know.

So, short of stuffing your mattress with cash, where can you put your money and have hope of seeing it again? It’s back to basics. The more conservative rules that applied for years before the irrationally exuberant ‘90s are back in fashion. What does being conservative mean? Well, you don’t make as much money, but you lose less, too.

Even if you invest with a broker or money manager, you actually have to pay attention in a market like this. Why? Because this market will go down as well as up and, despite any losses you might sustain, your broker makes money either way. If you can’t take the time to pay attention, you probably shouldn’t rely too much on money in the market for your future financial security.

Though they don’t agree on whether the bear market is turning around yet, investment professionals do seem to agree on several things:

• Know when you’re going to want your money; have a rationale. What do you want to do with this money? If you need it to live, you need to save it, not invest it. The market is the wrong place for it. Keep it liquid. Even though savings vehicles earn less on a daily basis, they will also not shrink at a critical moment when you, for example, need to pay taxes or have to buy a new furnace.

If you can let it sit for a while, then go ahead and consider putting some money in mutual funds or equities in addition to savings. Several investment professionals use a three to ten year rule of thumb: If you won’t need it for at least three years (or five or ten years—depending on the flexibility of your expenses and projected responsibilities), go ahead and invest it, cautiously. But that doesn’t mean forget about it; you need to keep track of what’s happening in the world as it relates to your investments.

• Don’t put all your eggs in one basket. Putting money in a mix of different places is the right approach for everyone. It should be some combination of equities (volatile), bonds (more stable, lower return than stocks), and cash (generally can earn one to two percent in a savings account or CD). The actual mix should be based on your cash flow needs and tolerance for risk. And be sure to diversify your investments in any market you’re in, so if one industry hits a rocky patch in the road, you’ll have some support from other areas.

• Know what you’re investing in. Anyone with a computer and a modem can invest in the market, but these days that’s only clever if they research what they’re buying. If you’re buying a mutual fund, check into what kind of stocks the fund owns. See what the fund manager’s track record has been. If you’re buying a stock, act as though you’re buying the company (you are). If nothing else, visit the Web site but remember—it’s their Web site. Understand what business the company you’re buying is in. Are you buying food—or tobacco? Are you buying software—or entertainment? Get a sense of how the company ranks within its industry. If it’s not near the top, why do you want to own it? Think about what industries you’re buying into and how they fit into the world today. Remember what happened to buggy whip manufacturers.

• Time to believe in the basics of investing. Buy low, sell high does not mean buy high, sell higher, which is what we’ve been doing for at least the past 10 years. Don’t try to wait for the very top of the market to sell, there’s no way to know what really is the top. Try to develop an understanding of what your price goal for a given equity is, and be disciplined: Sell at least some of your profits when that goal is reached. And know that you might have to bear some downs and wait a while before you realize your goal.

Along with this, it’s imperative not to hang on to problem-plagued stocks. For example, if a company you own is under investigation for accounting fraud, it’s unlikely its stock price is going to go up in the near future. Consider cutting your losses and putting your money someplace less scandal-plagued.

• Be selective about the source of your information. The explosion of financial media has led to a glut of information, much of it without value. All those talking heads and Web sites need content. That content is often provided by the very companies they are “covering”. Further, keep in mind that the independence of analysts has recently been called into question.

• Start buying Blue Chips slowly. It’s probably not an unreasonable time to cautiously buy Blue Chip stocks. But, take your time, do your research, decide what you want to own and slowly start buying. And keep some money in a more stable place—savings.

• International markets often outperform US markets. Right now, there’s much less scandal to be found, making these markets less volatile as a result of rumors and jitters. Investigate international stocks or mutual funds as a place to put your money.

• Dividends can make a difference. Look for stocks that pay dividends. Even when the stock price is soft, dividends, by their very nature, increase your investment.

• Utilities might not be exciting, but they’re dependable. Though the economy might slow down even more, people still turn on the lights and heat their homes. Utilities represent a regulated monopoly with a guaranteed rate of return—they’re a great stable element in an investment portfolio.

So, while the economy may or may not be starting to recover, there are still some things to do with your money. But no matter where you put it, it’s unlikely any one of us will experience another Bull market like we’ve just had. Look at this as a good time to go back to investing basics: What ever you do is for the long haul and the road might just get even bumpier before you see a good return.

—Amanda Bader