A Financial Meltdown -- A What To Do Guidebook (William Chirolas)

  Oct. 13, 2008 (World News Trust) -- For the under-50 part of the population, this is just one more bump on the way to a good retirement -- assuming they can keep their job. The old saw about keeping more money in fixed assets as you get older (because the time required for getting a new job grows larger with age) is still true, so the new college grad should in his first year working save a months after tax income in cash by living on only 80% of the after tax income he gets, the 40-year-old needs to keep six months income in cash, and the 55-year-old and older need to keep a years income in cash. These remain the guide lines -- with additional savings in our retirement funds of four times our annual income -- and all this after you go near bust trying to get the house/car/medical/kid's college savings/payments out of the way.

  Of course our greed means no one follows those guidelines as we all expect the stock market to increase our wealth from month to month -- and to do it quickly -- so we have near zero in cash and depend on credit card loans for near term cash needs and on Social Security, plus side jobs (this is "retirement?"), to get us through old age. That means losing your job -- and there may be a million more job losses before this is over if credit does not restart flowing soon -- which will be a disaster for most people.

  As everyone can see in today's numbers, the touted safety of "asset diversification" never really existed -- although my staying with majority of my assets in bank stocks because of the large dividend has been a special gift of humility from the good Lord.

  So what do you do now. Well avoid debt -- pay off debt if you can by selling your stock if that does not put you into a cash squeeze over the next 5 years. For goodness sake kill new credit card purchases and pay down or payoff -- if you can -- all credit card balances. Then close the credit cards and cut them up, keeping only a Visa and/or Mastercard for your wallet or purse.

  Living cheap is really not so bad -- you can learn to love pasta and beans and cold water. There is much tossed that is therefore free -- as in the Freecycle groups postings and the Craig's list "free" category ads. Learn to love your library and vacation by visiting places around your town. (I grew up under the above rules -- during union strikes mostly -- because welfare was only for the really poor and Dad did not consider us other than "middle-class").

  As to where to put the excess assets above those you keep in cash, your percentage of assets in bonds/CD's should be -- as a percentage -- within 15 of the number that is your age (at age 25 have 10% in bonds, at 75 have 60% - or more - in bonds).

  As to sectors to invest in and when to start investing and over how long a period do you do your four or five purchases (never make all the purchases on the same day as you will feel much much better if your assets go down over the five months, say, you use to make your five purchases, than you will feel worse if the market goes up and you "missed the bottom") -- as to the investment pattern and sectors to invest in I have no clue.

  The bad news is that every down market to date has had a "bottom" then a rise and then a lower bottom, over and over again, before a sustained uptrend begins. It has got to the point that Wallstreet's favorite saying is "Don't try to catch a falling knife."

  The good news is that in the last five downturns, if you invested $5,000 at the high just before the downturn for each of the last five downturns, you would still have $150,000 now (or at least you would have had that number at the beginning of last week when I calculated that number).

  Now for the very very bad news -- The above can not be depended on because the past is a lousy predictor of the future.

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