A few tips on staying afloat
By Joe Baker, Senior Editor
As the economy continues to worsen, many investors are wondering what they can do to protect their capital from shrinking further.
The coming meltdown, some experts predict, will include homes, bank deposits, insurance policies and even paychecks. Robert Prechter, Jr., a forecaster for Elliott Wave International, recently told CBS Marketwatch: Whats going to happen when the stock market finally bottoms? Youll be able to go in there and buy stocks that used to trade at $85 a share for maybe half a dollar or a quarter of a dollar.
What to do? CBS Marketwatch offers this advice: 1. Investigate the integrity of all money markets, bank deposits and other cash instruments at your disposal. All money market funds are not created equal. Look closely at safety and liquidity issues surrounding commercial banks and companies managing money markets.
2. Investigate cash equivalents that exist outside the U.S. In Switzerland bank reserves are backed by a 25 percent savings rate required by law.
3. Sell all stocks that are costing you money. Sell all stocks that are making you money.
4. Dont buy any stocks, bonds or anything termed a paper asset, unless you are ready to take a 25 percent loss, or you are prepared to hold them for 15 years or more.
5. Dont be fooled by short term rallies on Wall Street. These are staged to allow sellers to leave the market with a bit more cash than a month ago, but its nowhere near enough to make up for losses in the third year of dropping equities.
6. Buy gold and silver. If currencies tank bullion almost certainly will become an item of considerable value.
7. Eliminate as much debt as you can. That means credit cards, car loans, margin interest, mortgages and second mortgages. Credit overhang in this country stands at $30 trillion, owed by domestic companies, individuals and the government. Cutting out the debt may save your home and save you from personal bankruptcy.
8. If you have a job, keep it. Sell the SUV and, if the going gets rough, short-sell some of your major stock holdings like Diamond Trust or 3M.
Prechter summed up: First thing is, you need to get out of those very risky areas. The stock market is the No. 1 (risk) in a deflationary environment. No. 2 is the real estate market. And the third one is in bonds that have been issued by risky enterprises.