While I emphasised the need to save, I did that for the very reason that if one saves more then they can actually take less risk in their investments.

For example, if I save $1000 instead of $500 then I only need to invest in an instrument that generates 5% return to earn $50 vs putting money in an investment that may earn 10% to generate that same amount.

While initially that thought process may not impact how a person invests over time the value of increased savings has an ENORMOUS impact on how one invests.

That said, I would encourage a young investor at this point to invest in the following:

1. Total Stock Market Index Fund (use a large mutual fund family such as Vanguard)

2. Total Bond Market Index Fund

3. Short Term Govt Fund

I would use a weighting of probably 60% stocks, 30% bonds, 10% short term…

Use a dollar cost averaging technique, which means instead of making a lump sum investment, put in a fixed dollar amount per month.

Consistency is the key.

Then track the markets on an ongoing basis so you understand what is happening in the economy and why.

Buy index funds which represent the entire market versus individual stocks. Also the index fund has a very low expense ratio.

Sorry for the incomplete answer previously.

Hope this helps.

I hope that we can get peopel from other parts of the world to do the same.

Thanks again.

Reading through, it occurred to me that the problem (we have to recognize a problem before we deal with a solution, etc.) is a many headed hydra, but my what struck me as important is fiscallibral’s comment about the failure of rating rating agencies to correctly perform their stated functions, to properly access the risk of investments.
In my line of business, construction, we have non-governmental testing agencies. They ascertain where a product produced by a company meets certain standards (also determined by independent, (also non-governmental) institutions (i.e. ASTM). To my knowledge, there have been no instances where a testing agency has ever mis-evaluated a company’s product or more appropriately, fudged a certification in lieu of more comprehensive information.
Now I know building product specification is not the same as rating the soundness of a company’s finances, but I can’t help wondering why companies continue to enjoy assessments of risk outside the realm of reasonable speculation (read Enron). Is anything being done to address this issue, to reform the system? Is it even realized as a problem outside of financial blogs and articles? Can we have a system similar to the construction trades where a risk can be accurately and impartially evaluated? Although such a system of internal checks is onerous, is it not in the best interest, bankers, investors, government and ultimately, the general public?

I am not, by the way, suggesting that internal, private rating assessments supplant or diminish governmental regulation. There is a crying need to refurbish both. Maybe at some future date you could have interview someone with insights on how rating agencies (Moody’s, Standard & Poor’s) currently operate and how they might be “reformed” in the future.

In the UK some bank shares have dropped 90%. They were pretty safe bets. How about those that lost their money at Lehman? They were a safe bank? There is supposedly no risk if you put your money in a savings account.

The banking crisis has fully undermined the economy for years.

Us muggles have so many challenges ahead.
(from WSJ-what to do when banks fail)

….

As a result, nationalization would not solve the pressing problem of potential bank failures, particularly among small banks. Consumers who have deposits in such banks would still be dependent on the FDIC to return their money during a failure, and such a process could be lengthy and involve a lot of red tape.

.

As the week flew by, I heard one economist speak of “The coming depression” and another speak of real investment opportunities ….

LD, the casinos have no clocks. The mental disposition of so many is to “talk down” the market. BO is doing this. While no one in their right mind can argue this not FUBAR, I think it does not help in keeping a rational frame of reference, continually saying the sky is falling.
It does get dicey when an article says even though your money is insured, one may have a hard time getting it. So many people live pay check to pay check.
The art of saving is a dream to many.

The UK nationalised Northern Rock Bank. Northern Rock exposed the World to the house of cards that is sub prime (here they are called self declared mortgages). The near collapse made bankers re-examine the liar loans. Then came Fannie and Freddie.

The value of the equity that allowed people to obtain these loans and also buy large 4x4s essentially disappeared. Our car sales are down 50% and there are no loans available to buy cars ith – even if secured against the home. One of the mortgage schemes that was designed purely on rising equity were “buy to let loans”, where people could use potential rental income to obtain the mortgage and rising capital values to repay it. Those loans disappeared overnight (they are now definitely loans and not mortgage as to qualify for the remaining ones an 85% deposit is needed).

As part of the UK bank bail out (and we have put in as much money as the US despite being a much smaller economy), the UK Government has taken stock options for the money. It wants the money back at some point. It is not taking day to day management decisions (although some feel they should).

This is a property price crash caused because of a collapse in global banking. For those that call for more regulation, banking is now like the internet. Legislation will hit the small home owner it will not effect the giants such as HSBC. There has never been a global banking system like this before. This requires World wide solutions.

What Government can and should do is control their own monetary and inflation policy. From 1993 in the US and from 1998 in the UK, both Governments removed from the rate of inflation, house prices. This hid from inflation the (and thus wage rate negotiations) the property booms. People felt “wealthier” if not better off because their house was worth more. This had the effect of lowering real wage rates, lower levels of interest rate disguised the effect of this as houses were sold on the same basis of a loan £xxx per month, and not 3 x salary. More could afford to buy, but could only do so if they lied about their salary. That forced the price up, which meant the next person had to lie. The Government gained through increased property taxes.

Banks want to return to Xx salary. House prices will have to fall much lower for that to happen. Which means cars remain unaffordable which causes more recession. As prices fall, banks will want more security and all the current bail out does is recapitalise the loans out there, not new ones.

No one can say how big a drop there will be. The bail out put a piece of ply wood across the Grand Canyon and the banks are asking the World economy to cross it.

Economic assumptions rely on two participating agents a buyer (potential borrowers) and a seller (the banks). The banks have our money but are no longer willing to participate unless the borrower is AAA+ with 100% deposit. How do you force them?

We will be checking the back cars to make sure that nobody nodded off.

If anybody wants to leave a question for the conductor I will be checking later for any “stragglers.”

Thanks again.

LD

Good to have you on board. I have read a little about Mark Carney, the head of the Bank of Canada, since he was referenced by Mr. Kevin Doyle.

Mr. Carney has been aggressive in promoting the principles of disciplined and prudent lending. Seems fairly simple when you boil it down but that’s what it is.

While so many countries around the world have been swept up into this economic meltdown, two countries that I have not heard about (and which I need to review) are Sweden and Finland. Each of those countries had major banking crises in the early 90s (as did we).

I need to review before offering an opinion but I have not heard about them having major issues so I am going to guess that the lessons learned from then may have benefitted them now.

The countries that have saved (fiscal discipline) and lent judiciously (monetary discipline) are not suffering as much. Slow and steady wins the race!!

Yes, the pound is also much weaker.

Again, currency valuations are a function of:

1. interest rate policies within the country..
2. current account deficit…(exports minus imports)
3. perceived credit risk of the government (typically reflective of the government deficit)