

Tell YC: What are your financial strategies amidst this growing credit crunch / dragging economy? - kirse

What are your current financial strategies or predictions given this souring economic state?<p>Being 22, I'm a bit new to fully comprehending economic slowdowns and curious how others have made the best of them.<p>Personally, I'm pissed that the government continues to bail-out corporations, however I'm mainly interested to hear your thoughts on what sort of business / investment opportunities might arise out of this downturn.
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adldesigner
It's a cycle mon ami. It will always happen.

IMHO you should get very good at trying to build a business. Indeed that's
maybe why you're even reading in this aggregator anyway. Even when they fail,
you learn quite a good lesson, and using people around you to help you
leverage your talent will probably put you in a better position to withstand
these economic downturns.

On the meantime, get acquainted with sound economic theory books, maybe even
some accounting 101's and perhaps a refreshing metaphor wielding book
(Millionaire Next Door by Thomas J. Stanley and William D. Danko maybe?) to
help you get pumped up.

On a side note, it seems that economic downturns are favored by big investors
to get undervalued assets into their portfolio (be it either paper, real
estate or even businesses) for cheap. Indeed this seems to have been Buffet's
strategy all along. Maybe we could learn from him, that a bearish environment,
does not have to be the most caustic of ones.

You can succeed. Try not to speculate too much, go for fundamentals.

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noodle
here is a complete financial plan for you:

phase 1) pay down all your high interest debt. if you're paying more than 7-8%
on something (i.e. a credit card), pay that shit down. you'll be hard pressed
for the market to pay that much consistently, so you're best #1 investment is
to pay that down first.

phase 2) build yourself an emergency fund. if you get fired, have a medical
emergency, or whatever, you're going to need money. build up at least 3 months
worth of living expenses. keep it in a high hield savings account (i use HSBC
direct) so you're earning a solid 3+% on it. not too bad.

phase 3) take the bulk of your money and invest it in a diverse set of index
funds that have low costs. i also suggest setting up a 401k or roth ira if you
don't already have one and put most, if not all, of your investment money into
one of these (for now, at least -- compound interest and long term investments
work best when you start early). keep your money in here for the long term (10
years minimum) -- don't get scared over downs or excited over ups. over the
long term, the market will produce an average of a 10% return (see
[http://www.icmarc.org/xp/rc/marketview/chart/2006/20060714ti...](http://www.icmarc.org/xp/rc/marketview/chart/2006/20060714timetiming.html)
for more info), and thats what you want. rebalance your portfolio twice a
year. this is, essentially, autopilot investing.

phase 3.5) lather, rinse, repeat, in this order. if you get more debt that
falls into phase 1, do phase 1. if your emergency fund doesn't fit into phase
2 anymore, feed it until it fits phase 2. and then always, like clockwork, be
pumping more money into phase 3. feed it it like its one of your other bills.

phase 4) if you want some more risk, skim off some of your index fund money
and invest it into a small smattering of individual stocks. i recommend
dividend-paying stocks and REITs since, even if the price goes down, you're
still earning a dividend. even though my portfolio stocks are negative, my
individual stock portfolio as a whole is positive due to the dividends i get.
but be wary -- investing in individual stocks can be a gamble if you don't
know enough about what you're doing (and if you pick some of the "big" stocks
to invest in, you're already investing in them via your index funds, most
likely).

hope this helps. investing and doing well is easy. investing and doing better
than "well" requires research time (which you could use on your startups),
effort, and doesn't always work out.

~~~
mechanical_fish
_take the bulk of your money and invest it in a diverse set of index funds
that have low costs_

And now, a very important note for those of you who are even younger than me:
_The massive bear market is an incredible stroke of luck for you_.

(I didn't realize this back in 2000, and I paid the price. Don't make the same
mistake I did.)

When you're young you don't need immediate profit from your investments. You
have many years to sit on them. You want to buy low and sell high. When's the
best time to buy low? When the market is crashing!

So now, more than ever, is the time to save, save, save. Earn money and invest
it. Live cheaply and save. Buy stocks with a portion of your savings. Buy them
while everyone else is selling them, and take time now and then to bless the
universe for giving you a 25% (and counting!) drop in the S&P500 over the last
year. No matter whether stocks are overvalued or undervalued, buying them at a
25% discount from what they used to be is a good thing.

Of course, those of us who already have some stocks have a mixed blessing: The
portfolio value is collapsing, but there's also a chance to buy more at fire-
sale prices. And those who happen to be baby boomers are totally screwed,
because they have to retire _tomorrow_ and their savings -- even if they
happened to have had any -- are rapidly vanishing at precisely the wrong
moment. So stock market crashes aren't all wine and roses for everyone. But,
if you happen to be in your twenties, they're good news.

(For more details I recommend Bernstein's _The Four Pillars of Investing_.
Sadly, it's clear to me now that every year that I didn't know about this book
was costing me money.)

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adldesigner
Nice suggestions, noodle.

May I sugest a link that popped up just a moment ago?
<http://news.ycombinator.com/item?id=307838>

Or if you want it direct, use: <http://marshallbrain.com/million.htm>

Very nice, down to earth advice, from the founder of HowStuffWorks.

Edit: Just found the edit link. Fixed the comment.

