Dipping my toe into the water

Lately I’ve been toying with the idea of dipping my toe back into the stock markets, and have made a few transactions.  It seems to me that the market is really ready for a correction.  It’s been about 3 years since the flash cash of 2008 so maybe it’s time for another cash?  It sure seems like a lot of the same variables are lining up.

I’ll give you some background on our “portfolio” (as it may be) so you can see where I’m coming from.  Currently we have about 60% of our retirement assets sitting in cash.  My former workplace offers a convenient plan whereby I can put my funds into a cash fund and they will guarantee me a set rate, which is currently 5%.  Given the current market condition I’ll take that all day long.

25% of our retirement funds are invested in mututal funds that are currently shorting the market.   The remaining 15% is invested in consumer staples ETFs and one high paying dividend utility stock.

Unfortunately for me I sat on the sidelines for most of this last 3 years in cash and didn’t catch the rising stock or commodity prices, even though I was convinced they would go up.  I couldn’t pull the trigger for some reason.

If I think another correction is imminent that what are my options?  Well I could stay in cash so that when prices are lower I have cash ready to invest in items with value.  I could try to weather the storm by investing in “safe” investments like consumer staples and utilities.  I could also perhaps take advantage of the super bearishness on the dollar and invest thinking that there will be a rebound (and the opposite for the Euro which is super high)  (Follow this link to see how well the Bear fund has performed this year.  A Bear fund will increase in value as the dollar decreases in value.)  I’m pretty nervous about doing this though because the Fed is printing so much money that I can’t see that future all that clearly.  (not to mention I don’t have the amount necessary to buy into these funds)

One thing I am pretty sure about is the future has a lot of inflation in it and I need to invest with that in mind.

Another thing I’m eyeing are steady dividend paying stocks.  In this market it’s hard to classify any company as steady, but if I think hard about what people will give up in their lives Energy stocks come to mind as a potentially good choice.  There are a number of utility stocks that are priced quite low, with yields over 5%, which would beat CD rates.  You have downside risk on the stock price, but if you are solely involved for the dividend the stock price doesn’t really matter, does it?

One thing you have to worry about is the dividend cut.   As long as you are comfortable with possbly losing half your dividend (which would put you just lower than CD rates) I wouldn’t say this is such a bad option.  As far as energy goes, I would expect it to be one of the last things that people cut out of their lives.  They’ll cut movies, cell phones, restaurants, etc out of their lives before they’ll take the step of turning off the juice to their house and going dark.

So what to do?  I don’t really know.  I think long term gold and silver will continue to appreciate, but I want to own them outright in bullion, not in retirement accounts.  Interest rates are pathetic so CDs and Treasuries are out.  I could consider TIPS but the way the government is manipulating the inflation rate those won’t rise at the same rate as inflation, as they are supposed to.  The bond market may hold some interest if I can find some distressed assets with short maturities.  (I made a killing buying GM bonds a few years back with short maturities when GM first had some financial hiccups)  But high yield bonds are selling with ridiculous yields (a lot around 5%) and regular bonds are selling at less than 3% in most cases, and most of them are banks, which I don’t want to be involved with.  This is a crazy market to figure out.  Maybe the best thing to do is just stay in cash.

In the mean time, cut your spending and pay down your debt.  Paying down your debt that costs you 6% or 7% (of 24% if it’s a credit card) is the same as investing that money and getting that return on it.  There aren’t a lot of options available to get a return like that, so take it by taking back your balance sheet.

WARNING: I am not a financial counselor and am not licensed to give financial advice.  I am simply informing you of the choices that I am making with my personal accounts as a manner of education.

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2 responses to “Dipping my toe into the water

  1. You could borrow against your 401k for some big ticket items that have a good payback, like sealing & insulating your house or solar hot water. Or even paying down your mortgage. Yes, you do pay interest on a 401k loan, but the interest is paid back to yourself rather than the bank. And worst case, if you leave your job and can’t settle up or something, it just becomes a withdrawal and you get dinged on your taxes. No credit implications or anything.

    Every situation is different. Just throwing out an idea. I did something similar to what you are doing (or did), but I gave it up after a while because I just felt like the game was rigged.

    • Good thoughts Edson. Won’t work in this case as my 401K account is with a previous employer. I didn’t enroll at the place I work now so I could use the cash to pay down debt and buy bullion as I’m able. I agree that the game is rigged but I need to do something with these accounts even if they don’t really figure into my long term plans.

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