Hangin' Tough - Investment Advice from the Original Boy Band

Usually, the title of a post comes to me after I'm done writing it. But in this case, it came to me during a conversation yesterday with my neighbor, "Carole", who happens to be a very successful business woman in the tech industry.

Carole had come over to ask for help moving a piece of furniture, and we started chatting about her career. She told me that for the first time in her life, she was laid off. It is a frustrating situation, but she's not nearly as worried as I would have imagined, especially for a single mother.

This is because Carole has been maxing her 401k for some time, has plenty of emergency fund savings and a number of interviews already set up. She's been living below her means as a matter of financial course -- Carole is a veritable LMF4HMW rockstar! In fact, her main fear right now is taking her daughter out of school should she need to move for work.

I complimented her on being such a prudent financial manager, and she said, "well, if I were so good, my investments wouldn't be so far down right now. (Sigh.) I just feel like I should pull out of the market before it gets worse, but I know that this move would just lock in my losses."

Carole put it very well: 1) she feels bad (out of control, frustrated, afraid, etc.), but 2) knows changing her strategy would result in an even poorer outcome.

As a woman with 20 plus years until retirement, a strong portfolio of retirement and emergency fund savings, and a strong career ahead, Carole should take her advice net of the feeeeelings: stay put. Or as I so eloquently put it, "hang tough". Selling now will not only lock in her losses but prevent future gain.

For some reason, people can not seem to remember that they own shares in the form of funds or individual stocks (in the case of equities), and that just because the portfolio value is down, does not mean that it can not rise.

Carole doesn't have the luxury of continuing to contribute to her 401(k), but for those LMF4HMW out there who do, it's time to BUY.

Stimulating Stupidity with Socialist Style "Solutions"

It would be funny if it weren't so scary. The government handing out big stimulus checks to states and corporations who are habitually overspending and being inefficient. The government putting a moratorium on foreclosures. The government maintaining the asinine steep regulation for mark to market accounting which requires financial institutions to assign a "fair value" to assets that can be below the actual cash flow they bring.

So what exactly are we supporting and stimulating? Over spending. Propping up companies that should likely go through an extreme overhaul or fail. Artificially supporting individuals who were not good home loan candidates in the first place. Encouraging the very behavior that got us in trouble to begin with.

And why are we doing it? To avoid the unavoidable. Unfortunately, the tough part and the beauty of a free market (although it's getting less so) is that it works its kinks out. Sometimes there is a painful period afterwards. Often ugly things happen. But more often than not, a stronger reality ensues.

This type of "stimulation" is basically giving a drink to a drunk. Or handing another credit card to someone in Shop-aholics Anonymous.

I'm not exactly sure when it became okay to give everyone a participation medal. And make sure nothing uncomfortable or bad ever happened. But this mentality is digging our debt hole deeper and deeper and deeper.