If you’ve been watching the market at all, you have probably been trying to decide whether to stay in or get into cash investments. The economy is still lagging, employment numbers falling, home prices dragging… it’s hard to figure out whether it’s even worth investing money in this situation.
Lately, many investors are moving into cash or things like gold, that do better in bad markets. Keeping cash on the sidelines, in addition to some stronger investments as part of your portfolio, may be a good idea. If you are not an experienced investor, who knows how to make money in down or level markets, you could get royally screwed by keeping money in index mutual funds for example. The old saw about keeping money forever in a “good growth mutual fund” is a lot of hoo hah in markets like this, because the fact is these types of mutual funds have barely performed over 5% in the past 10 year period.
With so much uncertainty, if you are depending on a job for your income, you might consider paying off debt instead of putting money in an investment account where you may or may not get 4% returns. You could also lose your shirt. Small investors are not the ones who will do well in this type of environment. Many Americans are just paying off debt and saving their money, to make up for not being able to get credit, not getting raises at work, or getting their wages cut or even getting laid off. Investing in this type of market is not always the best way to go.
If you really have extra cash you can afford to lose, it might be a good idea to look at the types of things that do well in an economy where people are not spending on big items, but have to purchase certain things like fuel, heat, and food. International investments may also be useful to look at, since many retailers now are seeing no growth in the U.S., but finding their growth is coming from sales in Asia.
It’s worth taking a look at the variety of investments out there that could do well in a continued downturn, however keeping cash handy and getting out of debt continue to be priorities before earning low returns in a volatile market.