Why not invest in your business?
If you’re a small business owner, then you really need to consider investing in yourself. Whether you are starting to make money blogging, or through consulting, design work, or whatever the case may be – you know your business. From top to bottom, you know the ins and outs of your business – costs, income, the whole 9 yards. What better company could there possibly be to invest in than your own?

How do I invest in my company?
Well, since you already own this company, you can’t simply buy shares like you would with a publicly traded company. Instead, you need to look at your business, and see where you could spend money to make money. Maybe it’s dropping some coin on advertising. Or perhaps a new computer, if yours is old and slow. Maybe hiring an assistant is your your style. Whatever the choice is, spending money to make more is a brilliant idea. Anything that makes your business more productive and efficient is a benefit. You can feel free to be creative, as long as the money you spend has a goal – to make you more money. Before pulling out your wallet, always ask this one simple question: “Does it make money?”

What could you spend money on in your business right now, today, that would make you money?

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A gun. Specifically a Glock 19 9MM semiautomatic pistol. You may be wondering why I consider this an investment. Think outside the box for a moment. We’re always looking to invest and increase our net worth. But what would happen to you if you were the victim of a home invasion? For starters, anything of value in your home would likely be taken. That’s just the best-case scenario. Worst case, the intruder could take your life, or the life of your spouse / child.

Protecting my possessions is important to me. I work hard, and don’t want to have anything taken from me. But my family and my own life are far more important. If any drug addict / crackhead / gang member / random thef does break into my home, they might as well have taken their own life. I will kill to keep my family safe, and I wouldn’t lose a minutes’ sleep over it.  As for spending the money – is there any better use of money than protecting your own family? 

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“Only invest in the stock market that which you can afford to lose.” 

It’s been said a hundred different ways – but the message is very clear, and always the same.  If you *need* that money and can’t afford to lose it, stay away from stocks, period.  Excellent advice, and something I offer to any new investors.

The Biggest Conundrum of all

Where do most of us keep our retirement savings?  401(k)’s, Roth IRA’s, SEP-IRA’s, etc.  And the funds in those vehicles are invested in what, exactly?  The stock market.  That’s right.  Your retirement money, your nest egg, whatever you want to call it – all in the stock market.  The money you’re counting on to keep you alive and kicking when you’re too old to work – invested in a very risky area. 

What ever happened to that sound advice from above?  Out the window – gone.  For some reason, when it comes to investing for retirement, people assume the old rules don’t apply.  Why is that, you ask?  I simply don’t know.

Don’t ignore good advice

Retirement investing should not be solely in the form of stocks and mutual funds.  That is a fool’s errand, and ignores perfectly good advice.  Remember, diversify, diversify, diversify.  Stocks are not bad, and should not be avoided.  But you cannot throw all your money at stocks and assume you’ll have a financially secure retirement.  Investing for retirement requires a different view than short-term investing, but it doesn’t mean you can ignore all the rules and get away with it. 

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You’re missing the point

Imagine, for a moment, a different scenario.  Say a year ago, you had decided to put your money solely in Bank of America stock.  A pretty safe bet, by nearly all measures.  This way, you get to avoid those nasty mutual fund fees, and get the best bang for your buck.  Once you purchase the shares, no more ongoing costs, and all the gains are yours.  Neat!  Of course, BAC has tanked spectacularly ( down 87% ) in the last year.  Not very many funds ( if any ) are down by such a large percentage.  So diversifying didn’t help your money grow in this instance, but it does reduce your losses.

Look at the even bigger picture

So, mutual funds didn’t save you.  Funds are ETF’s aren’t the only method of diversification – just the most common one.  When you’re investing for the future, you need to own all sorts of different types of investments.  Here’s what I have in mind:

• Stocks ( Individual securities as well as funds, across different industries )
• Cash ( Yes cash is an investment! )
• Precious Metals ( as a hedge against inflation / USD performance )
• Real Estate ( Your own home, and possibly rental properties at higher wealth levels )
• Own a small business

Recessions hurt – and depressions hurt worse.  Your net worth will be affected – it’s just a matter of how much, and whether or not you can recover.  Don’t think that diversification will always make you rich, no matter the circumstances, because it won’t.  But if you have your hands in a lot of different pies, you have a much better chance of rebounding more quickly from a setback.

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All is not lost, after all.

The loss of reasonably attainable free trades is tough to swallow, no doubt.  I will think much more carefully before making any Zecco trades in the future – and I can’t imagine I’m the only one.  However, on the good side, trades will still be among the least expensive around.  Regular Market and Limit orders will be available at just $4.50 per trade.  Options will run $4.50 per trade, plus $.50 per contract.  I’m fairly certain that’s the cheapest around these days.  Zecco also doesn’t charge any inactivity fees like some online brokerages do – so you can leave your holdings alone without fear of ridiculous charges appearing. 

An added bonus for heavy traders

I’m not a pure buy-and-hold guy, but I do lean toward this philosophy as a general rule.  For those who don’t, and prefer to go crazy with trading, Zecco doesn’t leaving you completely hanging.  In addition to the $25k in assets rule, there’s another way to snag 10 free trades from Zecco.  Once you make 25 trades in a month, Zecco will credit you with 10 free trades.  You will have to use them by the end of the month, though, as they don’t roll over to the next month.

I won’t switch from Zecco yet

I’m not happy about the changes.  It will put a damper on my small trades, which I’m not thrilled about.  However, Zecco still has the best fee structure around for my needs.  I don’t do any fancy voodoo trades or use any crazy charting software, so I wouldn’t benefit from features like that.  If you’re a basic investor like me, Zecco is still a great choice.

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SPECIAL NOTE

Everyone who comments on this post will be entered in a random drawing for a free copy of How I Managed $20,000,000,000 by Age 32. Stop by one or more scheduled blog tour stops and share your thoughts and comments with author and investing expert Wade Slome. He will check in throughout the day to answer questions, and you’ll have a chance to win a copy of his book. Wade is also offering a free ebook which shares excerpts from his book, for a limited time. Be sure to stop by his website to get a copy www.Sidoxia.com. This is your chance to take a look inside the book and to learn additional information about Wade Slome and his business.

For more information about Wade Slome and his virtual tour, check the schedule at  http://virtualblogtour.blogspot.com/2008/12/how-i-managed-20000000000-by-age-32-by.html

Autographed copies available at http://www.amazon.com/gp/offer-listing/0615251587 – from Sidoxia for $23.95

Or

His book is also on Amazon for retail cost – http://www.amazon.com/How-Managed-000-000-00-Age/dp/0615251587

Alright, enough of my yakking, let’s get on to Wade’s thoughts:

How to Recession Proof Your Investments

Not too long ago, the National Bureau of Economic Research confirmed that the United States has been in a recession since December 2007. What a surprise? The recession confirmation just took a year to officially declare this known fact. The moral of the story: beware of the reliability of government statistics – the numbers constantly get revised.

Now that we know we’re in recession, what can you do to grow and protect your investments?

Diversification: The first place to start is “Investing 101″ and that’s diversification. Diversification is even important in asset classes traditionally considered safe, such as AAA-rated short term securities (i.e., Auction-Rate Securities) that froze up last year and prevented investor access. On the fixed-income (bond) side, spreading your bets is a worthy strategy as well. Right now there are certain opportunities in non-treasury bonds, such as TIPS (Treasury Inflation Protected Securities), Convertible Bonds, Corporates, High Yield, International bonds, among others. On the equity side of the coin, in addition to diversifying across individual stocks, broadening exposure across small capitalization stocks, large capitalization stocks, international, and emerging markets is also a worthy line of attack.

Asset Allocation: One size doesn’t fit all. If you’re an 80 year-old retiree, you don’t necessarily have to take on excessive risk. On the other hand, someone in their mid-30s generally can assume more risk.

But much more consideration must go into asset allocation, beyond age. Some older retirees may have such a large financial cushion that priorities may shift to grandchildren, in which case a more aggressive allocation may be appropriate. If the previously mentioned 30 year-old plans on purchasing a business within the next six months, then a conservative allocation should rule the day.

Avoid Fees: When returns are going up, investors generally ignore fees. A silver lining created from the downturn is that investors are sifting through the rubble and raising questions about the high fees they are paying. Whether it is high commissions, load fees, high management fees, surrender charges, administrative fees, 12b1 fees, or other charges, your typical “Joe” stock broker now has to answer tough questions. Don’t be bashful, ask the difficult questions. Once you factor in load fees, management fees, and transactions costs, the average investor is probably paying close to 2.50%, which is brutal to consider when you realize that ten-year treasury notes are currently yielding about 2.8% and investors have been losing their shirt in real estate and financial investments….ouch!

Dollar Cost Averaging: As asset prices decline, you can purchase more of that same asset with a similar amount of money. Or stated differently, you can purchase the same amount of shares for less money. For example, if I have $100 and I need to buy a suit, if the suit goes on sale for half price, there’s now a good chance I can buy a pair of shoes and a belt to go along with my suit. Plainly and simply, I can buy more goods at a lower price. As equities have lost close to 50% of their peak values, investors can purchase double the number of shares for the same price – a pretty good deal.

Market Forces Recession Proofing Assets: The almighty economic laws of supply and demand have injected self-correcting protection items into investors’ portfolios. With more than a dozen bear markets in our back pocket since World War II, we can appreciate that pricing risk levels are much lower than a year ago. Although counterintuitive, these periods historically have been the absolute best times to increase equity allocations (modified for investors’ risk tolerance and time horizons).

The Commodity Bubble has Burst: Every penny of gasoline price decline roughly translates into $1 billion in stimulus to the economy. A decline in gasoline prices from $4.50 a gallon to less than $2.25 a gallon translates into roughly a $225 billion stimulus. The prices of wheat and corn have come down to earth too and this will eventually lead to lower prices at the grocery store. In a recession, these self-correcting forces naturally relieve some of the economic pressures, and eventually these cycles provide a tailwind to the economy rather than a headwind.

Plan. Invest. Prosper.

www.Sidoxia.com

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BAC is another story indeed.  When BAC dropped to $10.25 per share, I just *had* to buy.  After all, I liked the stock in the 30′s – how could I not like it at $10.25?   Sure, it’s taken a beating like all the big financials… but a solid long-term play nonetheless.  So, I bought 30 shares.

The next day, I couldn’t resist another purchase, this time 37 shares at $7.54 per share.   BAC at under $8?  Unreal.  Of course since then, it has nearly dipped below $5 ( and slightly rebounded to under $7 ).  After receiving a big check from Uncle Sam, BAC was forced to cut their dividend to a penny – ouch!  I knew a divided cut was forthcoming, but I had no idea it would be so severe.  That really puts a damper on my purchases.  I don’t regret them – I think 2 or 3 years from now, BAC will be flying high again. 

So, what about you – have you gone out on a limb and made any “risky” stock purchases?  I’d love to hear about them in the comments.

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Don’t watch the market daily

Unless you have a stock in mind that you want to purchase, don’t look at what the Dow is doing.  It doesn’t matter to you.  Index fund investors especially need to avoid looking at daily fluctuations.  All you will do is give yourself ulcers, and probably talk yourself out of investing altogether – not a profitable strategy long term.  So stop looking.

Be prepared to take risks

On the subject of individual stocks, this might be the time to start thinking of a few.  The next few months ( heck, even years ) could very well be a downward spiral, or at best a roller coaster.  Long term though, fortunes are made in the stock market by buying low.  Whether right now is around the bottom or not – who knows.  I surely don’t.  But I’m ready to purchase good companies with good long-term prospects at extremely discounted prices.  If I have to own them for 5 or 6 years before things turn around, I’m OK with that.  And you should be too – if you can stand to part with a bit of your cash. 

I did recently – I’ll go over my 3 most recent stock purchases in an upcoming post.  Keep an eye out for it.

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Do nothing.  Do exactly nothing.

Selling now, while stocks are down, locks in  your loss.  If you sell now then you just guaranteed yourself a massive loss in cold, hard, cash.  Let’s look at it this way.  You purchase stock in a company ( whether an individual stock, mutual fund, or ETF ).  Your moeny is gone – you spent it on that stock.  You don’t own that money anymore – instead, you own a portion of the company.  The stock can go down 50% – but your portion in the company is the same.  If you owned 50 shares yesterday, you still own 50 shares today.

If you sell out now, you end up with much less cash than you started out with – not what you want to do.  Your goal is to make money, remember?  Stick it out.  Don’t watch the news every day – you’re just freaking yourself out.  If it goes down a bit more ( and it probably will ), keep the same strategy.  In time, every mess works itself out – even this one. 

Don’t jump in with both feet

That being said, if you’re thinking about entering the market or adding to your holdings, I might wait a bit longer.  I’m not convinced that we’ve seen the bottom yet – we may be a few weeks or even months away from that.  So keep your cash piling up for a bit – you may see some even better bargains in the near future.

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