World Financial Crisis - Are you swimming or sinking?

I have a friend living in a small Pennsylvania town who not only is smart but very worldly in his thinking. He should live in a major city like New York City (NYC), San Francisco or Chicago. Being so unique, his perspective never fails to be interesting.

Recently he sent me these words via email:

"I've got to tell you, though, people here are in tremendous denial regarding the financial meltdown. It's odd. Some will talk about it, but it really hasn't hit them yet".

When I read this, I was more perplexed than shocked. How could the USA and World financial crises not hit an average American? It hit me like a "ton of bricks" although thankfully not financially. From my experiences, many have been careless or uninterested when it comes to saving and MONITORING their money particularly for retirement. Some were admirable savers but had it negated by irresponsible oversight so it is not surprising to hear about people in denial or unfazed in this environment. That attitude will change when they read their current retirement or private investment statements. Hopefully, they have checked it by now!

If there are lessons to be learned from the destruction of numerous USA financial organizations, European and global companies along with one of the worst 8 days in USA stock market history, it is this:

Part 1: One should consistently save money. Even if only $25.00 a month, that money will be useful at some point. Save as much as you can as soon as you can. Frivolous spending has no place in one's life if you want to save in a productive manner.

Part 2: Investing in a company 401K retirement plan (or similar) is not only wise but should be profitable. In order to see future gains and avoid losses, one must pay attention to the the stock or funds (shares of stocks) you are invested in. To pay attention means MONITORING your plan weekly or monthly so you always know how your funds are performing. Many retirement plans are online so you can check them daily if you want. Specifically, you can usually view performance of your plan "year to date" or see the past 1, 3 or 5 year history. If your plan is not doing well, change the elements to those that are less risky or where the downside is nominal.

If you own individual stocks or funds outside of a retirement plan, those can be converted to cash or CD's when your feel or see that the economy might affect their performance. If you don't pay attention, how will you know? If you care about your money, you will monitor it with extreme care.

The problem becomes tumultuous when one checks investments rarely (i.e. once a year) and has no idea how their retirement fund or private investments are performing. I know people who often neglect their 3 month retirement statement after receiving it in the mail. If you fall in any of those categories, you probably have unimaginable losses after the last few weeks.

Part 3: Investing in your company's stock is a good idea especially if you buy it at a discounted price but never put "all your eggs in one basket". An acquaintance of mine worked for a high flying health company in the 90's and was an extraordinary saver for her future but made the grave mistake of only putting her funds into the company stock. She never invested elsewhere and was riding high for many years until the unthinkable happened; the company fell apart and she lost 80% of her retirement. I will never forget the moment she shared that story with me.

Part 4: Diversify. A quality life should include diversification in friendships, experiences and relationships as that gives one a life that is interesting, exciting and well-rounded. Similarly, a quality financial portfolio should be diversified in order for assets to grow effectively. If your money is invested in a variety of ways (safe, risky, medium risk,etc), that is usually a strong formula for success. Why? If one investment type is not performing well, you have others to rely on. The opposite of "all your eggs in one basket" from point 3 above is to diversify. If you don't, chances are you will experience some of the aforementioned pain.

Part 5: Getting financial guidance is important for success. I am not a big believer in having a paid financial representative as many of those individuals are out for themselves and not their clients. I do believe that one should learn from friends, family or colleagues who you trust that have been in the field of finance or are smart about investing. I learned most of my financial strategy from a close friend in NYC. I listened, watched and absorbed from this person for years and it paid off handsomely in the form of strong and consistent savings and retirement gains. For most, without some form of guidance, it is difficult to win in the savings and growth game.

One of the sports and technology world's most interesting personalities is Mark Cuban, owner of the Dallas Mavericks Basketball team. In his blog (http://www.blogmaverick.com/), he gives some sound advice for anyone but especially for those who are not comfortable with investing or are simply not interested in the time it takes to monitor. Below are a few paragraphs from a recent blog of his called, "I'm going long right now". The full story can be found on http://blogmaverick.com/2008/10/08/im-going-long-right-now/

"Unless you know a company and industry as well as anyone, PUT YOUR MONEY IN A CD. Buying and holding a CD that you renew every 6 months or so, and letting interest compound lets you sleep at night AND lets your money go up.

If you put your money in a CD, you have outperformed 99pct of fund and hedge fund managers around the world over the last 3 months and probably longer. Thats how smart you are. If you put your money in a CD, YOU MAKE MONEY EVERY SINGLE DAY OF YOUR LIFE. You never lose money. EVER. The NASDAQ is below where it was about 10 years ago. It is 65pct below its all time high. You are smarter than the market when you put your money in a CD".

Part 6: Cash is King. When times are bad or you sense that times are bad, it is a good idea to convert non-cash investments to cash or cash-like funds if possible. This is important when the economy goes sour as one will need cash to take advantage of the inevitable bargains available. I have done this several times since I started my career and a) waited for the good times to return or b) invested during the bad times. Now is a wonderful time to invest (primarily for the long term) as no one can predict how long this crises will last but most agree that if you have money you don't need for some years, there is an abundance of opportunity.

Finally, when times are good financially one shouldn't get overly EXCITED or EMOTIONAL as a dear friend did recently. Before this crises, I advised him on a stock transaction where he made a 30% return on a large investment in a few weeks. He was beyond ecstatic! What he didn't realize was he chose the right stock at the right time and the market isn't usually that kind. Not long after, he went for more success without my guidance and gave those incredible gains back rather quickly. I fear he is in a BIG hole after the last month.

Now to the title of this article. Are you swimming or sinking?

There are very few good things about this disheartening financial crises and it will strongly affect many people and countries for years to come. If you adhered to most of the aforementioned lessons, your pain is probably at worst bearable. If not, your pain is at best bearable and at worst a hole that you will never financially recover from.

Personally, I am on the sideline with only a "small toe in the stock market". I am waiting for a sign of improvement before I jump back in.

We should look at our finances in the same way we take care of our children and keep them safe. Both are extremely important to the well being of our daily life and the so called "Golden Years" of retirement.

I wish you well.

Happy Gswede Sunday!

Walkers, Bikes and Young Children - 3 things that are always plentiful on a lovely fall Sunday in Stockholm, Sweden