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1
A Historical Perspective on the Current Bear Market
2
How Should You Invest Your Emergency Fund?
3
Making the Best of a Bad Situation
4
How Much Do You Need in Your Emergency Fund?
5
Crisis Equals Opportunity in Some Bonds

A Historical Perspective on the Current Bear Market

Dimensional Financial Advisors is a passive-investment-oriented investment firm closely associated with Eugene Fama, 2003 Economics Nobel Laureate and father of the efficient market hypothesis. Today they sent me a link to a very nice presentation by their vice president, Weston Wellington. The presentation, “Is It Different This Time?” runs about 18 minutes long and puts the present stock market gyrations into a historical perspective by reviewing some of the “bear markets” of the last 50 years. It’s not overly jargon-filled and should be pretty accessible. The present market downturn reflects concerns about the non-availability of credit, the extent and …

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How Should You Invest Your Emergency Fund?

Having discussed why having an emergency fund is a good idea and how big an emergency fund needs to be, I’d now like to talk about investments suitable for an emergency fund.

Generally speaking, some part of your emergency fund needs to be in a liquid, readily accessible investment whose value does not fluctuate much.  An emergency fund invested entirely in your employer’s stock would therefore be a really, really poor choice.  Typically, emergency funds are invested in savings accounts, CDs, money market accounts (taxable or tax-free), or Treasury bills/notes/bonds.  Where bank deposits are used, they should be FDIC-insured.  …

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Making the Best of a Bad Situation

Congress voted down the Troubled Assets Relief Program (“TARP”) legislation, much to the chagrin of the financial markets. At the moment, the markets continue to be in distress, despite a “dead cat bounce” in stocks today. What should you be doing in terms of your household finances?

If you’ve already established a diversified investment portfolio that fits your goals, your situation, and your tolerance for risk, sit tight.  This is not the time for making big moves into or out of your investments.  The stock market is likely to swing wildly for a while until there is confidence that the …

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How Much Do You Need in Your Emergency Fund?

In my first post on emergency funds, I discussed why having an emergency fund is a wise idea. The next question is, how big does an emergency fund need to be?

The question of how much should be set aside for emergencies is one of several that people tend to avoid.  It can be avoided either by not saving anything, or by saving much more than is needed.  I’ve seen clients do both, although the former is the more common error.  Most people want to think about an emergency fund about as much as they want to think about …

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Crisis Equals Opportunity in Some Bonds

The Subprime mortgage mess and its aftermath were partly the result of risks not being priced appropriately. Interest rates for risky mortgages and bonds should have been much higher given the level of risk involved. As financial markets still recover from the aftermath of risk being underestimated, there is a good chance that there are now areas where risk is being overestimated. This week’s issue of Barron’s has two interesting suggestions in this regard.

I’ve written elsewhere about the limited returns available for investors in traditional cash investments like money market funds and bank accounts.  For now, it looks like …

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