Today is a bloody day on the stock market, with global markets tumbling over 5% in a single day. This is such a historical event that it calls for its own special editorial on Bankaholic.
Since I hold a basket of long-term mutual funds, I’ve been hit pretty hard this week. I’ve been looking to liquidate my mutual funds, but honestly, there really is no good place to stash my cash! Nevertheless, I’ve been doing some research, and thought I would share it with you guys.
These are the traditional options for investing cash:
- Stocks, mutual funds, and ETFs (exchange traded funds)
- CD (certificate of deposit) accounts and high interest savings accounts
- Real estate
- Bonds and treasury bills
- Stay in cash
And now I will show you why all of these investments are not so great. Yes, it’s pessimistic, but it’s true.
Thanks to the credit meltdown and recession fears in the US, the stock market is only playable if you have the guts and know-how to actively trade and go short. For the brave stock traders who are interested in going short, here are a list of ultrashort ETFs: DXD, SKF, SDS, QID, SRS, FXP, MZZ, TWM. These are high risk plays, so only touch these if you know what you are doing!
My personal mutual fund portfolio was hit really hard this week even though most of my investments focus on the global economy rather than the US economy. If you are curious, I hold shares in NEWFX, ANCFX, AEPGX, CWGIX, and my portfolio is already down over 15% in 2008!
CD & Savings Accounts
At the moment, locking in interest rates on long term CD accounts is actually not a bad idea. Traders on wall street are expecting federal chairman Ben Bernanke to make a 0.50% interest rate cut when the reserve bank meets on Janurary 30, 2008, so rates will only continue to fall in the short-term.
As for high interest savings accounts, I have to admit that current mediocre rates are actually looking quite attractive. A few months ago, I was upset about my Washington Mutual savings account rate dropping from 5.00% APY. But now, they rate is actually quite good compared to everyone else.
Still, the drawbacks of putting your money in CD & savings accounts is that interest rates will continue to decline because there is no doubt that the federal bank will continue to slash rates aggressively.
While real estate prices have been cooling, most buyers are still waiting on the sidelines. As homeowners continue to default on their mortgages, foreclosures will continue to drive housing prices down. Home value statistics on HousingTracker show that real estate prices are still continuing to fall, with no signs of bottoming out. Stay out of real estate until we see signs that the credit meltdown is over.
Bonds & Treasury Bills
While these options may be “safe”, the return on these investment vehicles is not aggressive enough to out-pace inflation.
Stay in Cash
Unfortunately, the horrendous devaluation of the US dollar makes staying in cash an un-wise option as well. Right now is not the time to invest in the once-almighty dollar. The Euro, on the other hand, is a good investment idea.
What to do?
So what am I going to do? I am definitely going to cut my losses on my mutual fund, because I have very little faith in the markets right now. I will probably take that cash and stash a good portion in a long term (3yr+) CD. I will also add more to my 4.25% WaMu savings account in case of emergencies.
I am also looking into investing in gold. What’s interesting about gold is that because gold is priced in US dollars, buying gold is actually a nice hedge against the deteriorating dollar. For example, if I buy an ounce of gold for $800 USD, and tomorrow the USD drops 50% in value, I still have an ounce of gold, except now it is worth $1600 USD. Do you see what I mean?
Finally, I am researching the FXE (Euro Currency Shares Trust). What’s cool about the FXE is that it trades like a stock, but is pegged against the Euro. So as the Euro becomes a more powerful currency, shares of FXE increase in value. This is a great way for American people to invest in the Euro currency.
Now it’s your turn. Where do YOU stash your cash?
And a video about how the weakening dollar weakens you.