Safer 401(k) Investing by Sherwin Presley Brown

Author:Sherwin Presley Brown
Language: eng
Format: epub
Publisher: Beaver's Pond Press
Published: 2012-11-19T00:00:00+00:00

Chapter 9

When the Blood on Wall Street

Flows into Your Street

So you’ve decided to stick in the market and weather the storm. But now you’re not quite sure in which direction to go; hedge funds are a gamble and tend to be Ponzi schemes; bonds are technically safer but have a slow rate of return and also have risk, and that risk outweighs the reward in my opinion. With so many companies in economic trouble, it’s hard to pick a stock that is safe and has a high propensity to pay a return on investment (ROI).

When managing a portfolio, I insist on diversity and keeping 30 percent in cash at all times. Napoleon Bonaparte always kept one third of his army in reserve to react to any unforeseen situations. This is the same policy I hold regarding a portfolio; keeping 30 percent in cash gives the client flexibility to react to dips and opportunities in the market.

Hint: Warren Buffett always buys low and sells high. He invests when everyone else is too scared to invest. Read between the lines and you’ll find that he never commits 100 percent of his cash no matter how good the deal is—he always has cash on hand, in good times and in bad.

At least 30 percent of your monthly contribution to your investment portfolio should go to a cash-type investment; preferably it would be FDIC insured.

As the old saying goes, “Buy when there is blood in the street.” You should be buying when everyone is selling, and selling when everyone is happily buying. People invest wildly out of greed and get out of the market at a loss because of fear. Remember the 30 percent no emotion rule. Don’t be swayed by greed or fear: This is called “the contrarian view,” and you will seem like the fool in the short term, but your bank account will prove you richly wise in the long run.

What Did I Do to Protect My Clients in the Recent Global Market Meltdown?

Starting in late 2006, I began seeing the crazy things people were doing with their homes and mortgages. Some bought real estate without even visiting the actual property with the intention of flipping it quickly to make a fast buck. (I knew one person who bought seventeen different real estate properties with the idea of flipping them.) Clients were telling me that they had friends and family who were putting all of their money into real estate and wondering if they should be doing the same. This type of euphoria reminded me of the Y2K scam before the high-tech bubble burst in 2000–2002. I immediately sent emails to all my clients notifying them that we were in a bubble and that it was only a matter of time before this house of cards would come crashing down. I also shifted a large portion of my clients’ money into cash and dividend-paying investments.

My only mistake was that I did not move them out of the large cap balance and

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