FPU Week 9: Of Mice and Mutual Funds

For this week's class, we had to think back to when we were in FPU and learing this stuff for the first time. There is so much information to absorb and implement. And this lesson is where it's easy to say, "I don't need to hear this now, maybe in a couple years when I'm on Baby Step 3...".

Well, no matter where you are in your financial walk, you need to hear this lesson, and here is why.
  1. The Week 9,Of Mice and Mutual Funds, lesson is really the ABCs of investing. You need to have a basic working knowledge of how these things work to know what to do, as much as what not to do.
  2. Maybe you already have some investments and think that you are ahead of the game. You may be, but are you diversified? Have you invested in some bad investments? Did you understand what you bought?
  3. "An investment in knowledge always pays the best interest" -Ben Franklin

Investing is something we rarely dive into on Not the Jet Set. So I'll take this opportunity to cover off on a few of the trends I'm seeing today.

  • Single Stocks / Day Trading - There seems to be no shortage, no matter where I work, of co-workers playing the stock market. Did you see XYZ today? Yeah, I bought in at $34. Didn't think it would hit $23. ABC was up, though.... It goes on and on and on. This really amounts to little more than gambling. Just for fun, I once used the online stock trackers on MSN to 'buy' stocks. With $10,000 fake dollars, I invested in companies that (I thought) I knew a lot about. I got into it, and 'bought' and 'sold' as I thought I would if I were really day trading. It was a huge bust. Now don't get me wrong. There are guys who are very very good at trading. they know when to buy, when to sell, and when to hold. They're called Mutual Fund Managers. It's their job to know when GM is about to crumble and when AMD is about to double. Things that you and I don't know until CNN is covering the story.
  • Gold - This was funny at first, but now it just won't go away. There is no shortage of ads for buying / selling / trading gold. Gold, gold, gold. So what is your first clue to stay away from it? Heavy advertising (kinda like something else we've seen before...)? Yeah, that's a sign. First, these jokers who want to pay you 'top dollar' for your gold jewelry? The ones with MC Hammer and on the commercials? Scam. Scam, scam, scam. When you think of these guys, don't think about Hammer, think of your local scrap yard opperator. That is basically what they are doing. Buying your gold at scrap price (likely less), melting it down to sell wholesale, so it can be made into jewelry for retail. It's not magic. As for the bozos pushing it as an investment? You can look at the historically low rate of return (barely keeping up with inflation). You can look at the fact that it has no intrisic value. But the best reason not to buy gold as an investment right now - it's at an all time high. It's an order of magnatude higher than it was 40 years ago. Why would you buy it now?
  • ForEx Trading - Yeah, you didn't know what it was either. Reason enough to stay away. But knowledge being power and all that.... ForEx is Foreign Exchange, or Currency Trading. It's meant to facilitate trade and investment - not be an investment. Yet speculators make up the vast majority of the market. Just remember, economic speculators exist to make weather speculators look good.
So what do we do? What exciting investment method are we getting rich on? We're not the jet set. We follow Dave's principle on page one of this lesson - Keep It Simple, Stupid. We only buy what we understand, and build wealth slowly. I'll also tell you what we haven't done - bailed out of the stock market. We invest for the long term in mutual funds with long track records. 5 years down the road, this downturn will be a distant memory. In 10 years, a blip on the radar. Stocks are on sale these days - some deeply discounted. We buy when they're low, not sell. And that's what we'll continue to do.

How are you invested? What have you done lately?


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