Wednesday, September 16, 2009 7 Lessons From the Financial Meltdown

In this guest post, offers 7 Lessons from the Meltdown, including:

"1) Where's the money? You'd better know—literally. The reported $50-billion swindle orchestrated by Bernard Madoff and other fleece jobs should put to rest the notion that you can get rich from unpublicized investment opportunities unavailable to mere mortals. If you give any adviser discretion to buy and sell investments without your prior go-ahead, you must demand to know where your money sleeps.

2) Cash is never trash. True, you'll never get rich earning 1% a year in a money-market fund. But that's no reason to insult a larger-than-usual cash reserve. The beauty of cash in times like these isn't that it protects you from losses in stocks and other stuff, although it does do that. The lure of cash is that it enables you to pick up investments on sale. Gobs of quality stocks fell more than 50% but have now risen substantially in the last six months. You couldn't buy them unless you had some money in reserve.

3) Wild swings over short periods are the new normal. How many times in the past year and a half have the market and sector averages fallen hard one day and soared the next? Or bounced more than 1% up and down several times during the same day's trading? "Fire, ready, aim" describes how traders act today. Don't expect any change soon, if ever.

4) Don't deify those who warned about losses. Few people who get paid to predict the market's fluctuations get it right. However, if you have an adviser who isn't habitually negative but urged you to switch more into cash and Treasuries a year ago, then you should shower him or her with praise. Sending over a nice bottle of wine or a bouquet of flowers would be an appropriate thank-you gesture."

Here's the link: For the other financial meltdown lessons.

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