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The media have been relentless in their discussion of the current state
of the economy. Many Americans have been paying very close attention to
economic news headlines, and they've been fretting about their declining
investment portfolios. This painful recession has prompted many to take
steps that are tantamount to putting their hard-earned money in a coffee
can and burying it in their backyard. Obviously, mattress-stuffing is
a safe way to go, but that lazy cash will definitely lose value over time,
its value eroded away by inflation. This economy has everyone worried
about their investments, but there's no need to panic. There are still
safe places to invest your dollars:
Gold - Since the global financial crisis began back in 2007,
investors have been looking for safe places to grow their money. Institutional
and individual investors have been buying gold, both the metal and stock
in companies that mine and process gold. The price
on gold will almost certainly increase into 2009 and probably into
2010 as well. The federal government has reacted to the triple threat
of a) the real possibility of a deep and protracted recession b) financial
market turmoil and c) the threat of deflation by dumping vast quantities
of cheap cash into the American banking system, and all this cheap money
will eventually make its way into the economy. When that happens, inflation
will rear its ugly head, and investors will buy even more gold, as a hedge
against rising prices.
Peer to Peer Lending Networks - Peer to Peer (P2P) Lending Networks
like Lending
Club 
have been gaining in popularity as individuals and businesses find it
virtually impossible to secure financing from banks and other financial
institutions. Currently, Lending Club offers investors returns in the
range of 6.69% to 19.37% (the average return is 9.05%.) If you're interested
in a short-term investment and you're willing to take on some risk, investing
in P2P lending may be an option for you. Research the network you're planning
to lend with. Find out the average loan default rate and carefully consider
whether it's a system that you are comfortable with. Most lending networks
allow you to provide micro-loans to borrowers, which you can use to get
your feet wet.
High Yield Certificate of Deposit - A certificate of deposit
(CD) is a type of deposit account that invariably offers a higher yield
than a standard savings account. CD's are considered relatively safe and
provide a decent return on your investment. Before investing in a CD,
use your favorite search engines (don't rely on Google alone! Yahoo! has
a great search engine too!) to research the financial institution you
plan on using. If you find complaints about fraudulent activity or poor
customer service or worse, then stay far away from that particular financial
institution. The last thing you want is to have your money tied up in
CD's provided by a fraudulent company like Stanford
Financial.
Credit unions have weathered the financial storms of recent months well.
If you can join one, it's a great idea to buy a CD with a credit union
(a CD at a credit union is called a share certificate.)
Debt Reduction - Reducing your debt should at the top of your
financial to-do list regardless of the state of the economy. Carrying
an oppressive debt load during a recession can bring ruin to a once thriving
household, and nobody wants to be forced into moving back with their parents.
If you are looking for a safe and smart place to invest your money, consider
investing in your financial future by reducing your debt.
Every balance you reduce or pay off will increase your monthly cash flow,
and that liberated cash can be used for investing.
Stocks - Experienced investors know that a recession can bring
great opportunities to make fast money. With real estate and stock markets
plummeting globally, the biggest losers are, generally speaking, small
to mid-sized companies and fast moving consumer goods (FMCG) stocks. Companies
that have had a substantial market share for more than 25 years are far
more likely to survive this and future recessions. It's important to diversify
your portfolio and sell stocks
of companies that are unlikely
to survive the current crisis. Look for strength and obvious opportunities.
Companies that are sitting on huge piles of cash -- $10 billion dollars
or more -- are strong. If a company's stock price is cheaper than that
same company's earnings, then owning a piece of that company is probably
a good idea.
U.S. Treasuries are also extremely safe. Even if everyone in the United
States failed to pay their taxes, the federal government has the power
to simply print more money to meet its fiscal obligations. In the current
economic environment, however, Treasury bills, notes and bonds are in
high demand, which in turn has caused their yields to drop dramatically.
Bottom line: there's almost no point in investing in e.g. a 12-month
Treasury bill when the yield is less than 1%.
It's always a good idea to have a strong cash position during an economic
downturn, but overdoing it can seriously compromise your plans for a
comfortable retirement. Investing during a recession can be tricky,
but with knowledge and some courage, even the most cautious investor
can invest with confidence and, most importantly, stay ahead of inflation.
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