Personal finance in the current american economic climate

[zahc]

I'm young, make a decent 75kish salary in Dallas, live in the 'burbs. Just bought a house with a modest down payment at the beginning of this year on a 15 year 4.25% fixed. Have built back to 15k in savings. Contribute the max my employer matches to 401k. Wife works and makes about 40kish gross. So we pay a lot of income taxes.

I've been watching Peter Schiff videos of youtube. He was, by looking at the fundamentals, dead-on about basically everything from 2008 to present regarding the economy. His predictions are that things have to get worse and that will probably take the form of inflation (and already has). I tend to believe him.

I'm trying to translate this into personal financial strategy since I think a lot of the typical advice doesn't apply. For example, conventional wisdom is that since I'm young, I should have my 401 in growth stocks, and I should be heavily invested in the stock market. I should contribute a lot to an IRA in hopes of building wealth. However, I'm pretty pessimistic about the fundamentals of the US economy, and I think that we have serious currency issues, and I think that it could get much worse if China floats their currency. So basically I think that the stock market is actually over-valued now, and stands to fall more. If I believe that, and if I truly believe that inflation is coming, what options do I have? The usual inflation hedges are gold and so on. While that makes sense if you have a lot of wealth you are trying to preserve, I simply don't have that much to invest in gold. I'm trying to build, trying to get steam going, trying to get ahead in this environment. I don't see my salary increasing substantially and I don't even work in a robust industry. I figure my 20s and 30s, if I'm lucky, will be spent trying to work uphill while being ground between taxation and inflation. I just don't see too many financial cards to play except to move my 401k into metals, commodities and foreign stocks. Maybe I should spend every dime of extra income on guns or physical goods. That just doesn't seem like a way to get ahead, especially given that my salary will not be keeping pace with inflation. I guess I just try to stay employed and hope for the best.

[Waitone]

We do not live in normal economic times.  We do live in extraordinary times.  The endgame of 100 years of fiat money supply is at hand and therefore expectation are not in line with the past.  I have two daughters that sound a lot like you (except for the male part) and my advice to them is concentrate on return of principal versus return on principal.  I keep telling them what they see now is not historically normal.  They can not use stratagems of the past to deal with the future.   

[Fitz]

I figure, be prepared for collapse and being penniless.


That way, anything better than that is GOOD!

[Tallpine]

Get the Heck out of Dallas and buy a farm 

Really, we all need to think about survival strategy instead of investment strategy. 

[AZRedhawk44]

Ditto here.  33, make high 70's, just bought a house, have about 15k between savings and 401k.

I have no faith in the 401k having value in 35 years.

Got guns and "preps."  Quietly augmenting preps.

I've stopped contributing to the 401k.  My employer doesn't match anyways, but I'm more afraid of the government snatching it and turning it into a communal annuity type of resource, meaning I get 10% of it's total value anyways.

I actually bought my house by investing in 3 different stocks about 3 years ago.  S&W, Goldman Sachs, and a little startup oil drilling company.  S&W and GS did great, the little oil driller is now damned near out of business.  But I came out MUCH further ahead with this tactic than I would have in a mutual fund or savings account, and it enabled me to have my down payment for my house 2 years ago.

I'd recommend you NOT trust the communal investment vehicles.  Mutual funds, 401k's, etc.

Take ownership for your own investments.  Buy stocks you trust and have faith in, directly, via eTrade or some other brokerage.  Augment that with gold or silver as you can afford it, but not crazy.  I tend to only keep 6000-7500 in the bank.  Have at least a couple months worth of REAL food that you ACTUALLY eat in the house.  Not the costco "bucket of disaster food" or raw beans and rice.  Stuff you actually eat already.  Depending on the number of people in the house, that can be worth $1000 or more.  And you'll just keep cycling it as you do your maintenance grocery shopping.

The nice thing about the food situation above is it allows you to shift to a "costco" style lifestyle.  The per-unit cost of food goes down, freeing up income once you have 2-3 months worth of food stored away.

Own your car, then be done with that kind of debt over your head.  Prepare your financial stance to buy vehicles outright after your current one is no longer financed.

Short-term:  $7000 or so, 3 months worth of food
Mid-term:  Precious metals.  Cherry-picked stocks of companies you have enthusiasm for their financial stance, product and morals.
Long-term: Those same stocks, your home, precious metals.


ETA:  I bought that one energy stock at $0.50 and it climbed to about $1.25 at its peak, but I left it in there since S&W/GS didn't peak quite then to where they would provide the house down payment.  It was only about 10% of my total initial capital and not the main focus, so I figured no big deal.  By the time GS/S&W peaked to where I was prepared to buy, the little energy stock tanked down to 0.40.  I didn't need it for the house purchase, so I left it alone and haven't even looked at it.

Just looked at it today.  The company is damned near defunct.  The stock is trading at 0.03, they have a new CEO and are now bustling around for rare earth minerals and lithium, with a partial ownership in only 1 operating hydrocarbon well.  I have about 800 shares of them and I figure the $25 to cash out now just ain't worth it.  I'll ride it into the ground and accept being pleasantly surprised if this new lithium/rare earth focus actually bears any fruit.  Who knows, maybe I'll get wickedstupidrich off of it.   They have a small PhD crew in northern Canada prospecting for lithium core samples right now.

I'm happy, over all.  Got my house down payment out of the deal.

[RevDisk]

If I may offer unsolicited advice, please do not listen to the folks advising you not to invest whatsoever.  I reminded a buddy, who is broke at the moment, that one should always have a plan for things going well as well as bad.  You should have an emergency fund of liquid funds (say $10-20k in cash), retirement investments, wealth investments and what I call "contingency investments".  That is the tin foil type of thing like silver/gold, food stocks, etc.  Diversity is good, unless you really really know what you are doing.

Assets are generally not investments, they are assets.  Stuff you own that may have value, but does not make you more money.  Assets in general do not appreciate.  They generally cost you money. 

I'd like to specifically mention that now would be the absolute worst time to buy gold.  I make my money off the simple fact that folks are morons.  Smart, educated ones, no less.  Folks tend to buy a stock because the price is going up, and sell because the stock is dropping.  In other words, the accepted form of investing is to buy high and sell low.  I make my money by buying cheap and selling high.  I do quite well at this.  Anyone that counsels you to buy something at well inflated prices may be well meaning, but you should think twice before following said advice. 

So.  Diversify.  Gain new skillsets.  Obtain more knowledge.  Don't be stupid.  Be frugal. 


I do agree with AZRedhawk on being skeptical of managed mutual funds.  A lot of them tend to suck, and the majority of them are beat by an S&P Index fund.  I didn't believe this until I checked the numbers myself.  Supposed stock experts have been beaten by choosing stocks at random.  Not that I advocate doing so, but always be a skeptic and do your homework regardless of your opinions.

[charby]

I have no faith in the 401k having value in 35 years.

Why? In 35 years most of the baby boomers will be dead, in 35 years I will be a several years into my retirement and my generation (gen X) is considerably smaller than the Baby Boomers and the Y generation.

I also don't have time to do research to cherry pick stocks anymore it seems like its a crap shoot to pick a stock.

401k lets me put more money in at tax deferred per year for retirement than I could with a Traditional IRA.

[geronimotwo]

remember that most investment firms make a percentage on the amount of money you invest, not on how much they make for you.  i would rather pay someone 25% of what they make for me, than 2% of the total i have invested, as it would tell me they have faith that they will be making me money!

of course keeping money in a bank or credit union doesn't do any good either, as inflation is far outweighing any interest they are paying.

[tokugawa]

There is nothing safe out there.  My belief is the Government, in desperation, will end up confiscating everything they can get, either directly or by inflation.  I can see no evidence at all there is any effort to solve the financial problems we are in, or, even if the effort was put forth, that they CAN be solved without a huge social disruption.   The reason the price of gold is high is because a lot of folks (and Banks) feel the same way-our dollar is toast.  Buy a few coins- who knows, maybe they will drop to $500 an oz- big deal- they may also  be the only form of liquid money accepted in a few years, when the USD is looked at like Zimbabwe D.  Nobody knows.
 Revdisk is right, it is smart to plan for things going well, I just wish I could find ONE piece of good economic news that was not a lie or spin.
 
 

[zxcvbob]

of course keeping money in a bank or credit union doesn't do any good either, as inflation is far outweighing any interest they are paying.

Inflation-protected bonds don't work either because the government lies about the inflation rate.

[Tallpine]

There is nothing safe out there.  My belief is the Government, in desperation, will end up confiscating everything they can get, either directly or by inflation.  I can see no evidence at all there is any effort to solve the financial problems we are in, or, even if the effort was put forth, that they CAN be solved without a huge social disruption.   The reason the price of gold is high is because a lot of folks (and Banks) feel the same way-our dollar is toast.  Buy a few coins- who knows, maybe they will drop to $500 an oz- big deal- they may also  be the only form of liquid money accepted in a few years, when the USD is looked at like Zimbabwe D.  Nobody knows.
 Revdisk is right, it is smart to plan for things going well, I just wish I could find ONE piece of good economic news that was not a lie or spin.
 
 

The wise man will invest heavily in hookers and booze 

[T.O.M.]

The wise man will invest heavily in hookers and booze 

and ammunition and magazines.   

[longeyes]

Take a look at Harry Browne's "Permanent Portfolio," either in do-it-yourself form or through the mutual fund of the same name.  It's essentially a hedge fund, at low cost, employing non-correlated assets.

Beyond that?  A survival garden, gold and silver, ammo, you know the drill.  And get to know your neighbors.

[S. Williamson]

Consider yourselves fantastically lucky. Want to hear my financial stats?

Annual gross income:  $20,800
No IRA or 401(k)
Total savings: <$1000
No house, car value approx $900

I have never had to worry about investing, because I can never retire. Disaster plan is one case of MREs.

I *wish* I had the trouble of worrying about how to invest my extra earnings. Not saying you're not entitled to what you've built for yourself, and if anyone tries to give me a handout other than my own tax returns I'll shred the check or drop the cash off at the first church I see. I'll fix your AC unit on my day off or something, but I work for my money.

And I, too, believe that it's going to get worse before better. I don't have to worry about paying my rent or electricity, or wonder if I'll be able to afford healthy groceries - hardcore budgeting keeps my head above water. What sucks is if my car breaks down, another gun or two gets sold to cover the cost. I'm skipping Thanksgiving and Christmas.

The only positive aspects of my situation are that I don't have a wife or kids to burden this with as well, and with the exception of the apartment manager every month, I don't owe a single dime to anyone.

I didn't post this "woe is me" story for sympathy. I posted it because so many people don't realize how great they've got it, or what is capable of such an extremely limited income.

[Balog]

There is nothing safe out there.  My belief is the Government, in desperation, will end up confiscating everything they can get, either directly or by inflation.  I can see no evidence at all there is any effort to solve the financial problems we are in, or, even if the effort was put forth, that they CAN be solved without a huge social disruption.   The reason the price of gold is high is because a lot of folks (and Banks) feel the same way-our dollar is toast.  Buy a few coins- who knows, maybe they will drop to $500 an oz- big deal- they may also  be the only form of liquid money accepted in a few years, when the USD is looked at like Zimbabwe D.  Nobody knows.
 Revdisk is right, it is smart to plan for things going well, I just wish I could find ONE piece of good economic news that was not a lie or spin.
 
 

Who is going to accept them? Are you going to buy food with those gold coins? Not saying they wouldn't have worth, but I've never understood the idea of keeping metals as a medium of trade. Outside of a Mad Max Bartertown scenario, it's unlikely they'd be accepted by anyone. And if things do get that bad, what are you going to trade that gold for?

[birdman]

My plans
(33, only debt is vehicle loans at low interest, income...well, let's just say I dislike our president's statements on taxes)
Current assets, 50% of annual income in 401K, 10-15% in savings

I max out my 401k, with 7% company match, plus 10-20k a year in non-tax deferred investments in a diversified mix dominated by index funds and international growth funds, along with a smaller percentage of counter-inflation funds.

I have three plans:
1. Everything is fine...at even the low end of historic growth, and conservative long term inflation, I should be able to "retire" at 55-60
2. 401k is worthless due to (fill in the blank)...lean on other long term investments (well diversified) and consulting income to deal with a later retirement (65+)
3. SHTF.  

A proper mix of those three accounts for best through worst case, but doesn't compromise actually living while doing so.  (unlike long term prep which will occupy all your time, money, or both, and is near worthless (inflationary destruction of asset value) if SHTF doesn't happen)

Buying gold for a SHTF hedge is dumb.  The value density is too high, and the price to get in is way to high.  If the reason you want precious metals is for SHTF barter...get silver....or ammo.  As an investment for non-SHTF? Metals are overvalued.  

The purpose of a hedge is to bet both sides in such a way as to let your high-probability, low rate middle bet (e.g. Index funds) generate the probability adjusted return, while eliminating the total loss result associated with a low probability negative (SHTF), AND providing the advantage of extra gains in a low probability positive.  The latter should be the secondary hedge, and only if you have the necessary info to make it reasonable.

Anyway, that's my plan(s)

[RevDisk]

There is nothing safe out there.  My belief is the Government, in desperation, will end up confiscating everything they can get, either directly or by inflation.  I can see no evidence at all there is any effort to solve the financial problems we are in, or, even if the effort was put forth, that they CAN be solved without a huge social disruption.   The reason the price of gold is high is because a lot of folks (and Banks) feel the same way-our dollar is toast.  Buy a few coins- who knows, maybe they will drop to $500 an oz- big deal- they may also  be the only form of liquid money accepted in a few years, when the USD is looked at like Zimbabwe D.  Nobody knows.
 Revdisk is right, it is smart to plan for things going well, I just wish I could find ONE piece of good economic news that was not a lie or spin.

I spent time in third world countries.  Gold is useful for the high rollers.  Very dense wealth.  For everyone else...  You can't eat gold.  Your neighborhood farmer or market stall dude doesn't want it in any large quality, as it'd earn him a bullet in the ear from the nearby warlord, mafia goon or UN police. 

(An aside.  Heh, yea, I actually got to live the nutso right wing fantasy, a country "occupied" by the UN.  Not very scary after you see it.  The UN Special Police tend to cringe when an American grins a bit too hard at them.  Well, the Mk 19 didn't hurt either.  It technically wasn't aimed AT them...  Hey, their belt buckles might have tried to strangle 'em.  Tricky things, buckles.  Stab you in the back at the drop of a hat.  I was just ready to aid our international brothers with covering fire if it happened!)

Not to mention, he's not likely to believe it IS actually real pure gold.  If you want to go the post-Apocalyptic "gold" route, you're better off with jewelry gold.  More diluted and believable.  But you're better off with trade goods if you're betting on that route.  You'd get a better return on your money, even prior to the gold spot price jumps.

But, please, by all means, go and buy all the gold you can.  If the Ferret Apocalypse happens, I'll happily take said gold off your hands for fractions of a penny on the dollar. 

[Scout26]

http://www.youtube.com/watch?v=7ubJp6rmUYM

I think a diversified portfolio would be good.  But now is a bad time to buy gold, so only buy half of what you would now and wait 6-12 months and buy the other half.

Ammo is good.

Rev has good sense, plan for both the bad and the good.  Chances are you'll be right one way or another.

[Tallpine]

I'm thinking about stocking up on even more food, plus new clothes, boots, anything we need that is likely to go up in price dramatically over the next couple years.

[Jamisjockey]

Holy hell I just saw that silver is $45 an ounce!!! 

[White Horseradish]

Heh. It would be nice to have this problem of what to do with money...

If the SHTF, the best possible effect would be my debt going away.

Some years ago I got a book for Christmas called "Millionaire next door". After reading it I found out that millionaires live in inexpensive neighborhoods, drive old cars, and dress simply. Apparently, I live just like a millionaire, minus the millions.

I do have to say that I am proof that it is possible to support a family of four on 50K a year. You just have to learn how to do stuff yourself and marry a girl who doesn't like diamonds. Her fondness for .45ACP, while financially pressing, is entirely forgivable.

[Jamisjockey]

Right now my primary mission is getting back out from under debt.  We threw alot of money at trying to make our business grow and treated it like the government.  Growth is happening again, but not because of the capital expended....its the hard work of my lovely bride.  Debt needs to go bye bye.

[Tallpine]

Right now my primary mission is getting back out from under debt.  We threw alot of money at trying to make our business grow and treated it like the government.  Growth is happening again, but not because of the capital expended....its the hard work of my lovely bride.  Debt needs to go bye bye.

Wait a couple years and you can pay it off with inflated dollars 

[Jamisjockey]

Wait a couple years and you can pay it off with inflated dollars 

Yeah no kidding.