People who find joy in bad news have to be pretty happy lately. The financial crisis has dominated the news, as we watch Wall Street and Washington scramble.
We don’t usually do this – in fact, we’ve never done it in the 230 shows we’ve done so far. But this subject is so important and so timely. So we want to share some valuable information that our newsletter subscribers received in their In boxes last Friday.
In the last edition of The Bigg Success Weekly, we discussed “Profiting from Panic”. It was about maintaining the proper mindset in the midst of all this turmoil.
We started with the safety net that exists for depositors, investors, and insureds. Here are some links directly to pages that can answer your questions about banks, brokers, and insurers in a hurry.
In general, banks are insured by the Federal Deposit Insurance Corporation (FDIC). However, not all money invested through banks is insured. What would happen if your bank failed? If you have accounts with a failed bank, what should you do? How can you obtain a release of lien, if a failed institution is your lienholder? The following links provide the answers to all of these questions:
Accounts with brokerage firms also offer some protection through the Securities Investor Protection Corporation (SIPC). The coverage isn't anything like that offered by the FDIC, but it's still important to know what remedies might be available to you.
While banks and brokers have federal backing, insurance companies have backing through associations at the state level.
If your insurance company fails, you'll want to contact your state's Department of Insurance, since insurance companies are overseen by that department in each state in which they operate. Click here for a directory of each state's office.
Two billionaires, two eras, one mindset
Warren Buffett, the richest man in the world according to Forbes, recently invested $5 billion in Goldman Sachs, in the midst of all this turmoil. That’s pretty typical of how he’s made his fortune – he says he’s “fearful when others are greedy and greedy when others are fearful.”
He has also opined, “We want to do business in [a pessimistic] environment, not because we like pessimism but because we like the prices it produces.”
From: The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor, by Robert Hagstrom, Jr.
Warren Buffett is not alone.
J. Paul Getty was one of the first billionaires and the richest man in the world in his day, according to The Guinness Book of World Records. He said, “I began buying stocks at the depths of the [Great] Depression. Prices were at their lowest, and there weren’t many stock buyers around. Most people with money to invest were unable to see the forest of potential profit for the multitudinous trees of their largely baseless fears.”
He went on to say that he made over 100 times his investment on many of these stocks!
From: How To Be Rich, by J. Paul Getty.
Our best strategy
So we can learn from these two men that we shouldn’t panic, even in turbulent times. Now, you may not want to rush out and buy a bunch of stocks. However, you probably shouldn’t sell out right now either.
These two billionaires made a fortune by going against grain. So keep making those 401(k) contributions. By investing consistently over time – paycheck by paycheck – you’re dollar-cost averaging into the market. In bad times, you’ll buy more shares with the same money than you can in good times – just like the billionaires.
Above all – diversify, diversify, diversify. Diversification is one of the four key investment principles, according to William Sharpe, a Nobel Prize winning financial economist. Our newsletter subscribers read about these as well as some ideas to simply put them into practice.
Today, more than ever, it’s important for you to take on the role of Chief Investment Officer for you and your family. You can’t count on Wall Street or Washington to do it for you!
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Next time, we’ll discuss why it’s so important to move beyond personal productivity. Until then, here’s to your bigg success!
(Image by PocketAces)