Don't Worry, Be Money

You may have noticed a lot of economic events on the news lately. Oil is pushing $110 a barrel. Gold is at $1,000/oz. The Fed is slashing short term interest rates. Delinquency rates are rising. And on and on it goes.

May I make a suggestion? Build a well diversified portfolio suited to your needs and risk tolerance and just stick with it. There is a lot of fear in the markets right now, and people are panicking. Irrational exuberance has perhaps turned into irrational despondency. This isn't the end of the world. It's not even officially a recession yet. And by the way, recessions aren't the end of the world either. They are a natural part of the economic cycle. Being worried because the economy is slowing down after several years of strong growth is like being worried because you're tired at the end of a long work-week. Expansion and contraction. It's part of life. Just go with the flow man.

Of course there are serious economic issues out there. I have talked about them before on the blog (like the trillions of dollars the government has amassed in debt). But don't panic. The average person on the street hears a report on the evening news, gets scared, sales his long term investments now when they are low only to buy them back in the future at a higher price when the same reporter on the evening news says that the economy has turned around. It really doesn't hurt to be a little contrarian as an investor. I remember looking a couple years ago at put options on Countrywide while it was racing over $100/share. (Put options make money when the price of stock goes down.) Today I am wondering about put options on gold futures.

And by the way, if you are suddenly panicking about your personal finances now, it probably means you were living a lifestyle you really couldn't afford anyways. Be thankful this is forcing you to face reality, and that it's a really good idea to live consistently beneath your means, not above them. Then when times like these come, it becomes more of an opportunity than a threat.