What Is A Twenty Something To Do With This Financial Mess

The turmoil in the market and the current standings of the financial market have many people skeptical. Long time investors are starting to really wonder where their investments are going and when it[the declines] will stop. Investors who have a while until retirement have mixed emotions, after all no one likes to lose money but seriously when is it going to stop? What about those new to investing? Many of us are just starting out in our careers and starting to make money. We are diligently putting money into our 401k’s, our IRA’s and in stock investments outside of retirement accounts. Those new to investing are getting scared, and those wanting to jump in are as skeptical as ever.

When starting out the market can be a scary place, even without an economic recession and a rapid decrease in stock prices. There are all sorts of terms being thrown around, people giving their opinions, and lots of numbers. The best thing you can do to ensure success in investing both now and in the future is educate yourself. Here is the big question: What should a twenty something do in today’s current financial turmoil?

401 Contributions – Don’t stop! It’s that simple! If you are already set up to invest automatically each month and you are receiving a match from your employer then there is no reason to stop. Yes it is depressing watching your investments go down the tube. I have lost over 30% in both of my 401k portfolio’s and I’m hovering around 40% in my personal stock portfolio. This year has been a pretty bad year for me anyone would say after looking at those numbers. However, I have to disagree with them. First off I’ve saved 12% of my earnings into my 401k, 3% into a 529, and about 5% into stocks. Despite my large loss in my personal portfolio… I haven’t actually lost anything. The value of my portfolio may be down but as of right now I own hundreds of shares that I’ve been buying throughout the year! The important part is I am saving, and as the price of shares go down I get to purchase more.

Build A Watch List – This is something I’ve been doing over the last 10 months. I have been watching the stock market and writing down companies that I feel are solid investments but have been on the decline. On a few occasions I have jumped the gun and made purchases but for the most part I am just performing analysis on them and then putting them on my watch list. So far my list has grown quite large and as the crisis thickens I am finding more companies coming down in their stock price which seem more reasonable to me (cough) Apple (cough). This exercise not only gives you time to think about whether or not the company is solid enough for your portfolio but it also gives you experience performing analysis and looking for value investments.

Pay Off Debt – As of right now I think this is your most solid choice. The way the market is going you’d consider prescribing it some medications for attention deficit disorder. Paying off your debt is really a great idea regardless of the state of the economy. However, if things really get bad and the recession worsens you will definitely want to be debt free and have a cash reserve in the bank. Paying off your debt now also gives you extra money in the coming months when the market turns upward and you want to jump in. Investing has it’s points but it is somewhat counterproductive to obtain a 5% return on your investment of $2,000.00 when you have a credit card balance of $2,000.00 charging you 23%.

Buy – As I said before a few stocks on my watch list have gotten a jump. Out of them I’m only truly proud of 1.  In a 6 month time frame it has yielded me a 52% return, all in all that’s awesome given our current market conditions. On the other hand the others have decreased in value by about 20%. If you have the stomach, the patience and understanding now is a great time to buy. Even Buffet recently jumped in buying up GE at $22.00 a share, a few day’s later that investment is down about 5%.

Sell – While flipping through the television one evening (I was taking some time away from the computer) I caught an episode of Mad Money with Jim Kramer. Kramer was talking about doing some house cleaning and was saying how this is a great opportunity to do some portfolio house cleaning. Selling off the heavy losers in your portfolio. Personally I don’t enjoy selling, your mind starts to tell you that the stock price will rise again and you hesitate. The next day the stock increases 2%, the day after another 2% and you start kicking yourself. Of course this is my experience, long term the stocks I sell never quite pan out and they certainly never make it back up to my purchase price. You decide what is good for you, but I would not recommend selling off your entire portfolio, even if you have a 30% decline.

Day Trade – Day trading is a whole new arena. There are different rules to the game, it’s fast, and not for the faint of heart. I’ve been learning about day trading over the past few weeks and I’ve learned a lot but It is still pretty confusing and definitely not for me. I’ve picked up a lot of the terms, and methods people use from the google forums on google finance but I’m still lost on it. Day trading is not something I recommend to anyone. Firstly theres a good chance your short term capital gains tax will take over your gains. Secondly, the chances of actually making decent gains starting out will be very small. There are exceptions to the rule, many people make amazing gains by day trading. However, statistically you are more likely to lose money day trading then you are to make it.

No Stock Picks

So there you have it, those are my recommendations for twenty somethings in our current financial market. I have vowed never to dish out stock picks Keep your stomach in check and try not to think about the decline in stock prices. Keep in mind you have over 40 years before you even have to worry about retirement. Keep thinking about the “On average the market returns X%.” That’s how I justify it! I shrug my shoulders and say well, I’ve got more shares for less money and when it comes back up I’ll be doing a lot better. I know it’s hard, but everyone hang in there, stay strong, and keep your head level!

Similar Posts

• CNBC Stock Picks for 20 Somethings
• The January Effect
• Ready, Set, Trade!
• 8 Financial Milestones By 30
• Investment Advice