Tips for riding out a recession?

marys1000August 27, 2007

How to position yourself. What to do leading up to and during.

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I have begun to check out training programs before my next layoff. I believe, that is the best way to eventually create more income and buffer myself. This change, is overdue, but the economy makes it very clear.

Many friends, are taking a part-time job on top of an already 8 hr. job, and won't be healthy enough to survive that brutal schedule.

I will also be changing to a shift that has a premium. Any little things to generate few more $ is a good step.

I panicked, at first, with gas prices, but getting rid of credit cards is my goal. The trick, is to having the training and job to sustain thru bad times..I settled for what I've been doing for some years and that was ok for awhile, but not enough for these tough times. On the good side, it's forced me to make a move and I am happy thinking about it.

The main thing I've learned is that no one wants the same thing or has same goals. I won't listen to negative ideas about settling or nothing will do any good. I won't allow myself not to try. Frame of mind, is key. I keep "cheerleaders" around me.

    Bookmark   August 27, 2007 at 10:23PM
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Learn to discern between "want" and "need". Too many spend too little time on this, seemingly obvious thing.

Take care of "need" before indulging "want".

Live below your means.

    Bookmark   August 28, 2007 at 3:20PM
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Are you asking about a recession or depression? This country goes through a resession about every 5 to 8 years and for most part they are just lean times but come to an end in 18 months or less. The best thing you can do is keep your lifestyle in check to match what emergency savings you have.

What dmissy mentioned about retraining is the best thing you can do if you know your job is going overseas or being phased out. Regardless you should always have a plan should you lose your income. That should be true in good and bad times.

    Bookmark   August 28, 2007 at 4:47PM
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Since this is a financial forum, I think Mary is asking what investments to hold. At least, that is MY question.

    Bookmark   August 28, 2007 at 5:57PM
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Here is another person's "opinion". Not necessarily mine.

Market Dispatches

How to survive a market correction

The Dow's plungeas beenÃplenty scary, but this is no time to panic. Here areÃthings to do, and not to do, with your investment dollars.
By Tim Middleton

The continued decline of the Dow Jones Industrial Average ($INDU, news, msgs) leaves investors with a big question: What to do next?

But this is no time to panic. Market corrections are an opportunity to upgrade the quality of a portfolio on the cheap. In panics, everything gets whacked. Only later, as they sift through the carnage, do investors discover that plenty of good stuff has been thrown out with the bad. The truly bad, meanwhile, gets worse.

If you've been prudent, you've built up some cash to take advantage of a correction that has been widely predicted. If not, the time to act is now. You don't need to take drastic action: A correction is short-lived by its nature, and stocks remain the likeliest assets to perform well in the next few years.

Here are some simple do's and don'ts.


  1. Lower your risk profile. In a correction, "you want to sell the assets you're least comfortable with," notes David Ellison, the chief investment officer of FBR Funds. "If you think they're risky, get rid of them." Among domestic stocks, the likeliest candidates are real-estate investment trusts, which have trebled in recent years. Other vulnerable groups could include microcap stocks, which are hypersensitive to the economy, and communications funds, which have been buoyant after being crushed at the end of the 1990s, the last time there was a panic. Overseas, the target is even more obvious. Emerging markets get pneumonia when the global economy sneezes. Fixed-income investors will shun mortgage bonds, high-yield bonds and the debt of developing countries.

2.If you do sell assets, hold on to the proceeds in a money-market account or Treasury bills. You are going to want this money pretty quickly, depending on events, because stocks are the best place to be, even when they're correcting.

3.Watch for bargains to develop among the kind of blue-chip companies that have proved resilient in past market tempests. Health-care mutual funds are a great place to start looking. So are technology funds, because a market panic isn't a capital-spending panic; blue-chip stock funds in general; and foreign-stock funds, particularly those with plenty of exposure to long-suffering Japan.

  1. Stick with high-growth companies, like the midcaps I recommended in my column of Feb. 27. Post-correction buyers are going to be looking for winners, and this is a winning bunch. Ditto blue-chip growth.


1.Rush into bonds. What's the profit? Corporate bonds and high-quality municipal bonds are already delivering misery yields. As one of Pimco's bond gurus, Paul McCulley, pointed out in my book "The Bond King," "The upside of a bond is that you get your money back." Investors own bond funds to cut risk; you own them always, not selectively. If bond yields were 8%, they would look interesting; below 5%, they aren't worth a second look.

  1. Waste time on traditional havens such as gold, real estate or commodities. Those markets have enjoyed massive multiyear rallies that have already filled them with risks of their own.

  2. Be scared into bear-market funds. Despite benefiting from the worst bear market in a generation from 2000 through 2002, the average bear-market mutual fund declined an average of 7.1% in the 10 years that ended Jan. 31.

Longer term, you might decide this long-in-the-tooth stock rally could use a few buttresses in your portfolio. Here are some to consider:

Â¥ Long/short funds. As I described in a column in January, these funds play down markets as well as those with the usual upward tilt.

Â¥ Market neutral funds. Some funds hedge away from stock risk. One group I described last August are merger funds, which scalp some of the premium in corporate acquisitions.

Â¥ Permanent Portfolio Fund (PRPFX). As I noted in November, it has almost no exposure to stocks.

Other than that, take advantage of the correction to exchange some of your lowest-quality assets for some of the highest quality. When normal times return, you'll be sitting pretty.

    Bookmark   August 28, 2007 at 6:06PM
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dreamgarden -- That's useful information, but dates to early in August. I don't think the market is merely "correcting" now. It looks like a global meltdown is in the works.

Wall St. is unhappy with Bernanke, wanting him to "rescue" them by lowering the rate. Yesterday's drop came after the Street read FED minutes that didn't even glance that way. Seems to me the FED is doing the right thing for all of us by holding firm to fight inflationary pressures, but that's not what the market wants to hear.

All very well to say "hold 'em" (mutual funds, whtatever), that they'll "do well over time". But why wouldn't you dump 'em in this climate. It's not like you can't buy again. Nice to know we regained our dot-com losses after three years. Nicer to have dumped before the crash!

    Bookmark   August 29, 2007 at 10:41AM
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If you are invested in quality funds invested in things you know and understand why would you want to "dump" them (at a loss) and buy back in at a later date? I know, I know... the price per share might go down. It may not.

I think this comes back around to the whole "time frame" question. We have some stuff that did fabulously well and has taken a dive of late. We also have stuff that was plunking along and is STILL plunking along. But we also have a longer range time frame and are willing to sit tight and offer up some fingernail growth. ;)

We live lean, below our means, and we're still banking money.

How much of market volatility is attributable to the nervousness of investors who are only too accustomed to seeing GAINS and flip out when there is "down" period?

    Bookmark   August 29, 2007 at 4:47PM
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Lately, on the days when the market tanks, I pull up charts for 1 year, 5 years, etc. It puts it into perspective.

I also take a look at our nest egg. Sure, one day it's down more zero's than I care to look at, but again, when I look at Dec statements for 06, 05, 04, it gives me that long term perspective.

It costs to sell and it costs to buy. If the funds are solid, why play around with them?

When my BIL retired and took a lump sum, DS(sister) thought she could play the market and make more... They've lost a third of their portfolio. I wish I could get her to talk my our CFP....

    Bookmark   August 29, 2007 at 5:42PM
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Zone 8.,

I'm right there with you. Fingernails are cheaper than the ramifications of selling/converting/buying willy-nilly.

I sure don't have the stomach for that sort of thing. I trust our CFP. Interestingly, we talk about things for about a quarter before we do anything major...

    Bookmark   August 29, 2007 at 6:28PM
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Recession or Depression I'm not sure. But I think things are going to go or stay downhill, particularly after the election. We will only really start to feel the impact of the war I think after the fact when things slow down and they start to realize what the bill really amounts to and the press starts to not only talk about what's going on in the housing market, of which I think the effects will continue for awhile, but when they go back to looking at the deficiet and how much of our debt has been bought etc. etc. I'm sort of the opposite of a person whose good at finances but I usually have a pretty good gut idea of what the big picture is generally and I'm worried. If a recession is only 18 months perhaps I'm thinking something else.

    Bookmark   August 30, 2007 at 5:40AM
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Lately, on the days when the market tanks, I pull up charts for 1 year, 5 years, etc. It puts it into perspective.

I agree, Zone8. I don't do much investing now (spending too much on the kids - most of our investing is prepaying college tuition and funding retirement) but in the 80s I paid into several mutual funds. It was a pretty volatile time and some years a fund or two would dip 10-25% while other years another fund may go up by the same amount. But I had a mixture of funds so when one went down, another would be up. I kept on contributing on a monthly basis; my bank account was set up that way. In the down months, I just saw it as "bargain buying" where I got more shares for the same amount of money spent. After 7 years, I was ahead of the game despite the ups and downs.

I honestly don't think the housing market downturn signaled or started anything catastrophic. Remember the early 90s? The housing market, in many urban areas, did a "correction". Local governments laid off employees, state governments froze their hiring. Private corporations probably also laid off and/or froze hiring. It wasn't a pretty time but I don't think it was anything comparable to the Great Depression (if that's what you're thinking).

    Bookmark   August 30, 2007 at 9:25AM
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This is a different ballgame than the recent past. We have a global market that has invested in "funny money" -- mortgage and hedge fund derivitives. The dollar is weak. China is strong and getting stronger. Putin is showing his KGB nationalistic stripes. (See the story about his "Youth Camps" and think: Hitler.) We have huge war debts and have succeeded in pouring political gasoline over Iraq and its neighbors.

If the FED breaks and lets the Street off the hook by lowering rates...the market may go up but the average citizen will suffer inflation. If the FED stays strong against inflation, we're still in for a rough go while the Market drops and the housing debacle takes years to sort.

If you see that coming, why wouldn't you try to play defense?

    Bookmark   August 30, 2007 at 11:05AM
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So the housing market struggles, then the auto market struggles, more and more layoffs, pretty much all our other manf jobs have gone to China, half of America has been living on 10.00 an hour and credit anyway, now their out of work or inflation is up enough so that they might as well be, the price of oil rises, the war debt comes in - it could be an easy slide to a bad place thats going to take a long time to climb out of. I have vague memories of the 70s.

    Bookmark   August 30, 2007 at 8:28PM
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I see a major recession coming - especially with all of the APR resets in the next 3 years. People will freak. If you are not still contributing to your egg(dollar cost av.), then cash out now. Park it in some nice FDIC insured CDs. Ladder them, but get a few long ones (5 year). I remember those 6%+ rates shriveling to squat soon after 9-11, and they're just getting back. This crisis could be just as bad (or not). 5.25% per annum is a heck of a lot better than losing money.

I also like energy sector funds (oil and natural resources). Maybe because 2 billion Chinese/Indians are starting to want (and afford) cars with their new-found jobs. Lets not forget the supposed "increased severity" of the tropical systems hitting the gulf due to global warming. I bet the next 10-20 years will see energy funds do quite nicely (albeit with heart-stopping volatility)...

    Bookmark   August 31, 2007 at 3:47AM
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I too see a fairly long recession/depression whatever you want to call it ahead.

So are you saying that CD interest rates tend to go down in bad times?

    Bookmark   August 31, 2007 at 10:01AM
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muddbelly -- Would you add commodities to your "buy" list? This has been a good year to be in farming. A Bank of Montreal newsletter I read predicts the market for corn and wheat will rise as more people in China and India prosper. Of course, Russia also has a huge potential to provide the same products -- and energy.

    Bookmark   August 31, 2007 at 10:52AM
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I don't really like to speculate too much with my retirement (commodities and such). I have a rollover IRA. I no longer contribute to it since my current employer has a generous state-sponsored pension. I'm not "buying cheap" when the market heads down, so a bear market will cause a lot of harm to that balance. Were I still contributing - I would leave it alone.

I have done really well over the past few years with global growth funds (with some "age based" asset allocation and a surprisingly strong equity & income fund from Oakmark). I have a long way to go before I retire, but after what happened in 2000, I refuse to sit there and take it because of an obvious coming weakness in the general economy.

Therefore, I have parked my money in CDs, and will eak out a meager 5.25% for the next few years. Its better than losing. The only thing I am willing to gamble on is oil (I put 25% in energy sector funds). I have read too many articles about REALLY rich people banking long term on oil. This is not a safe bet at all (like diversified large cap global growth over the decades) - but just a "hunch."

    Bookmark   August 31, 2007 at 10:09PM
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>>This is a different ballgame than the recent past. We have a global market that has invested in "funny money" -- mortgage and hedge fund derivitives. The dollar is weak. China is strong and getting stronger.I don't agree with this. "We have a global market that has invested in "funny money" -- mortgage and hedge fund derivitives."

What the market is objecting to is the improper classification of risk. The Fed has a hard time affecting the global economy for reasons I've posted elsewhere and don't need to repeat. The Fed can only affect US banks. Securitization of loans takes it into the equity markets. You have stronger banks as a result, which is good - we certainly don't want a repeat of the S&L meltdown in the '80's which really did cost us taxpayers billions. The volatility is happening because no one is sure who will pay the final piper. When that's decided, the markets will forget about it until the next media-induced crisis. The big shakeup isn't in the Fed, it's in the ratings agencies. The president of S&P's ratings division just got booted out (the old "left for personal reasons") because of it. Moody's prez is probably also on the hot seat right now, and deservedly so. The EU is anxious to force the US to agree to an international ratings agency so they're screaming bloody murder because THIS GIVES THEM LEVERAGE in discussions with the US equity market regulators.

Realistically no government or single bank is going to go bankrupt due to the subprime messiness. The fact that companies are going under is not because there isn't enough money to keep them going. It's because corporate bankruptcy enables them to get out from under the liabilities when investors start suing to recover their money. And let us not forget that most investors are not individuals, they are corporate and institutional investors. The majority of individuals do not have substantial equity assets, except for their retirement funds, ALL OF WHICH are institutional investments.

"The dollar is weak."
Yes. It is weak because Bush WANTS it weak. It makes the deficit look much better than it really is. It's a nice little sleight of hand that doesn't cost him anything, and hides a lot of evils.

>>China is strong and getting stronger.Anyone who believes China is going to rule the world must have forgotten the '80's mantra of "Japan is going to own the entire USA!". China is running on financial speculation, cheap labor that is rapidly rising in cost, and the most catastrophic pollution on a scale unprecedented in modern history. How many Americans are aware that 80% of the particulate pollution in the air of Los Angeles is caused by pollution drifting over the Pacific Ocean from China? The Three Gorges Dam, an incredible environmental disaster, will eventually (sooner rather than later) destroy the ecology of a major part of one of the most important regions of China - the Yangtze River and Shanghai (which is their global business center).

We Asians have a very different culture than the West, which affects how we view business. It is doubtful we will ever see Japanese and Chinese versions of the EPA and the SEC. Even if they were established, corporations would simply bribe their way around them. Bribery is, whether Westerners think it's morally repugnant or not, the way business operates in the Orient and the Middle East; indeed, the way business operates in virtually all countries.

There is a reason why, much as other nations would absolutely love to find another place to park their money, the US still remains the primary place for foreign-owned bonds. We still have the most stable economy, most open and well regulated marketplace, in the world. There's a great article in the WSJ recently, on how the Brazilian oil company Petrobas turned itself around. Once one of the typical inefficient, mediocre, slipshod nationalized companies, they became one of the world's few success stories in government-run companies, simply by then-President Cordobas forcing them to sell equity shares on the NYSE. It actually was only a small portion of the company, but it forced the management to operate openly, disclose financial results in annual 10K's, and brought in a level of accountability unheard of before.

Will some other nation supersede us? Sure, eventually. Our decline is happening already. But it will probably take longer than any of us will still be alive.

    Bookmark   August 31, 2007 at 11:36PM
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jkom, I agree with you 100%.

    Bookmark   September 1, 2007 at 7:04AM
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Thank you, jkom, for applying some valuable perspective.

As I see it, the subprime-mortgage problem (I won't use the word "crisis") involves a small number of mortgagors and borrowers. Will it cut some spending of discretionary income? Sure. But so will the price of fuel in the U.S. (still historically cheap even at $3/gallon). Will housing prices be depressed some? Maybe. It's hard to say if the slowdown (or even reversal) of housing prices in many markets is due to beleaguered borrowers dumping thousands of houses on the market (unlikely, IMHO) or the result of market saturation brought on by years of low interest rates and rapidly-escalating house prices. When this happens in the stock market, it's called a "correction". I see no reason to think anything different is happening here or that this will ripple beyond a relatively-small number of lenders and borrowers who probably should not have been doing business in the first place.

Also keep in mind that, despite their bleeding incompetence, the current Administration has every interest in making the economy at least look healthy. If they can't manage that, you can forget about seeing anyone from the current ruling party in office for years to come.

    Bookmark   September 1, 2007 at 11:59AM
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Good post jkom.

However, I disagree with the minimization of the current financial crisis. Subprime reclassification is just the tip of the iceburg - today's problem, so to speak. Mostly a concern for bankers, and hedge fund investors.

The real concern is the inability of those with neutral or negative equity to refinance their soon-to-reset mortgage payments over the next 4 years. Banks demand 20% equity now. We have only seen a fraction of the resets so far, and house values are already stressed. Even those with prime ARMs will struggle to make payments that increase by hundreds of dollars. That leaves less to spend on everything else. Way too many people were led to believe that refinancing was a gimme when they purchased with 100% financing. This should affect every aspect of the economy....

    Bookmark   September 1, 2007 at 12:28PM
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Way too many people were way too stupid in their blind belief that they could "have it all", have it now, and not have to make a downpayment!

I am not unsympathetic to their plight, but the reality IS when you borrow money you have to PAY IT BACK. "No money down" on a HOUSE? umm... where's the EQUITY? buy your equity ON TIME, because the "value" of your purchase will increase?! did they have rocks their heads? Did they never contemplate the grim possibility that the value might not continue to to UP... that it might just "correct" and they'd be left with a home worth less than the amount on the note they AGREED to?

It irritates me that brokers were so quick to sweet talk marginal mortgage candidates into contracts they had little hope of fulfilling, but the BORROWERS should shoulder some of the responsibility too. Whenever you borrow money you must INFORM YOURSELF of the terms and accept only those terms that you may reasonably shoulder when the goin' gets rough.

I am very "old school" about this sort of this sort of thing! And I'm shocked that this sort of basic knowledge is not part of the school curriculum from first grade on up.

I also like the post from j... . It pretty much summed up my thoughts, too.

    Bookmark   September 1, 2007 at 2:36PM
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Actually, I think the question more appropriately is, what percentage of those with neutral or negative equity will continue to be able to service their debt despite the reset?

I frame the question this way because we originally bought our home with an ARM in 1989. And due to Loma Prieta, yes the house became worth less than we owed on it. However, we had to stay with it because we were in the process of a whole-house remodel - the house was worth literally nothing at the time of the earthquake because it was gutted to the four walls. We had no choice but to finish it, live in it, and stay there until our finances straightened themselves out.

Sixteen years later our once-worthless house is now worth more than three times its original purchase, even in a market that has declined 12%. It can decline even more and we still would make a profit. Besides, we have to live somewhere, so it might as well be here.

In 2004 we refinanced the house with a zero-interest 3yr loan because we wished to draw out some of the equity for home improvements and intended to pay the house off completely before the reset happens in February 2008. We are still on schedule for that, and will probably pay off the mortgage at the end of October 2007.

We refinanced my MIL's house in 2005 the same way, because I knew we needed to convince her to sell the house (she's been widowed for 4 years and knows nothing about maintaining a house). She sold it late last year for close to asking and paid off the small mortgage easily with her profits on the sale.

I absolutely do agree that many people believed refinancing was a "gimme". Only time will tell, however, how many of those people are actually forced to leave their homes, as opposed to staying in them and waiting out the "bad times."

    Bookmark   September 1, 2007 at 2:46PM
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As I said, I'm very "old school" about borrowing money. I'm certainly not averse to it, but I believe in a tidy downpayment, I believe in rounding up payments (the extra to the principle of the note) and a 13th. payment directly soley to priciple. I know that many offer arithmetic that "proves" my beliefs to be folly. But we like owning our home. It was a goal for us and we've achieved it. And we achieved it relatively painlessly... by doing precisely what I outlined above. It wasn't very hard, but it required diligence and a lot of careful decision making. It has also made borrowing for a garage very easy. Interestingly, our bank was quick to assure us that our note would not be "sold". I wasn't dialled in to that at the time, but now... upon reflection, it makes me think about the whole lending operation...

I agree that the casualites of the ARMs will begin to define the extent of the "crisis". What saddens and shocks me, though, is the number of people who naively believed that they could have "it all" with NO money down. I don't understand that, at all.

And I while I understand the value of home destroyed by a natural disaster leaving you "in the hole" I'm not sure we're actually talking about the same thing. Didn't your insurance policy cover your loss (surely earthquake insurance is part of the bargain in a place where they're common)? so how could you possibly be in position of a home worth less the day after than it was the day before. I'm missing something, certainly?

I believe that those who've followed the time honored "rules" with respect to mortgages will fare well. I have grave worries about those "on the fringe".

    Bookmark   September 1, 2007 at 3:47PM
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I'm of the opinion that there's very likely to be a much tougher shakeout than many are anticipating.

I have some money to put into the market ...

... but it's sitting in my jeans.

As for the beautiful 5.5% (or so) earnable as interest income these days ...

... don't forget the two rats that eat your cheese.

You have an uninvited partner in all of your financial dealings related to income ...

... the income tax people want to talk to you every year about your income ... and they want part of it.

In Canada, the type of income earned by most folks is taxed at the highest rate ... but that earned by a number of rich folks at much lower rate.

If you put your money where you're guaranteed to get every dollar back, there's that other guarantee that the financial institution (that makes more on your money than you do) never mentions ... they won't pay you one dollar more, either (apart from the rent on the money).

But ... the value of each of those dollars has shrunk, every year of the last 65 or so.

The rat called inflation nibbles off a piece of the corner of each of those "guaranteed"-dollar investments, every year that the other guys use your dollars.

I too regret that we don't teach our kids more about how to manage money ... but we need to learn a lot more about that subject, ourselves, first.

For example, few mutual fund managers manage to out-gun the market averages, over substantial periods. Part of the reason being that they want about $1.00 in the $5.00 - 6.00 that your money usually earns in equity-based mutual funds (about $1.00 in $4.00 in Canada).

Why not learn how to invest directly in the stocks, themselves, after you have established a certain base level of investments, and put the mutual funds managers' fees into your own pocket?

Have yourselves a lovely weekend, what's left of it.

ole joyful

    Bookmark   September 1, 2007 at 4:35PM
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I so admire where you are coming from. I do need to clarify something though.

surely earthquake insurance is part of the bargain in a place where they're common)

I live in earthquake country. It's actually difficult to get earthquake ins here . I insisted it for our current home - had to send pics of our hot water tank strapped to the walls. It's $150/year extra, and the deductible is 20% of the cost to rebuild. My son can't get it at all because his house is over 50 years old. Also, we can't get it on the rental house we own becuase it too, is over 50 years old.

So, actually, earthquake insurance isn't necessarily part of the bargain...

You are, however, right on, the rest of your post....

    Bookmark   September 1, 2007 at 10:56PM
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Just like insurance companies to not write insurance if they think there's a chance they'll have to pay off...

Interesting article on the New York Times Web site this morning (link below) about a suburb of Cleveland that is really suffering through this subprime mortgage problem. One of "victims" commented that some of the responsibility was hers because, "Once we got the loan documents at the closing, I just came home and stuck them in a drawer." When her lender's estimate of monthly property taxes was off by $130 (!), she fell behind on payments and, subsequently, on the mortgage. The government of her suburb has responded to the crisis by negotiating en masse with mortgage companies, on the theory that smaller payments are better than none or than foreclosure. That does not resolve the problem of people not doing enough "due diligence" to realize how closely they're cutting their budgets. Unfortunately, it does not appear that that kind of education is coming to people anytime soon. :-(

Here is a link that might be useful: NY Times article on Ohio foreclosures (may require registration)

    Bookmark   September 2, 2007 at 11:26PM
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Many banks are on the hook, as well.

My Canadian large bank stock recently dropped about 20%.

Did I see it coming? No.

Did I consider selling? No.

I bought it 40 years ago for about $4.00 and change, recently (late May) it hit $107. In early Aug. it was $87.50, recently recovered some: it's about 7% of my assets.

If I sell and buy something else I have double commission to pay, plus major capital gain tax to pay next srping (which, to be fair, I, or the executor of my estate, will have to pay sooner or later ... but I prefer ... to defer).

The stock is a quality stock, that I want to have in my portfolio for the long term.

I have another advantage.

What's the main difference between a pay cheque and a pension cheque?

To continue to receive a pay cheque ... you must be in physical, mental and emotional good health enough to fulfill your responsibilities at your workplace ... or you don't get it.

Plus, your employer has to be able to continue in business ... and willing to keep you on staff (or you able to find alternative employment, at more or less comparable income level).

But all that I need do to continue to receive my pension cheque is ...stay topside the grass.

So - my pension is more or less guaranteed income.

I am in a position where I can live on less than my 3 pensions (plus my rather smallish annual payment from my tax-deferred retirement fund, that I saved 26% on when buying ... and now am nominally paying about 38% on during liquidation - so I have a better plan to recommend to clients currently considering participation in such ... which recomendation is their choice as to whether to follow ... it's their money, not mine).

And I am currently paying around 9% of my income to income tax (in years when I'm not required to pay some tax on capital gains - which, apart from reinvested dividends on mutul funds, is most of them).

Also, as I near age 80, I have almost 80% of my assets in equity-based issues, about 11% in a mortgage fund, which has stayed very stable over 20 - 30 years, and 25% of it in equity-based mutual funds, none bought (with new money, that is) in upwards of 20 years, and I'm about to liquidate some, for slow-growth reasons, a rather common malady on the part of mutual funds. Managers of mutual funds like that guaranteed compensation ... too bad so few of them manage to outperform the relevant market averages!

Plus what was about 8% cash ...which has grown to upwards of 10%, in recent time (I'm not sure, precisely, as I do very little buying and selling, and don't recalculate often, either ... but I check individual prices slightly more or less weekly).

I live frugally ... and have enough assets that I can do substantial juggling, should I choose to. And have 60 or so years of experience living a variety of lifestyles to guide me ... about 70 years, if you consider the years growing up on the farm ...which has a major impact of most folks lives: farmers evaluate money differently than almost all city folks.

It's much less stressful to have a number of strings on one's violin. And not need to play ... on any given day!

ole joyful

    Bookmark   September 3, 2007 at 8:30AM
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Thanks for your time in posting intelligently on this subject, jkom51.

The folks who are on the "fringe" will either struggle for a few years to keep up those house payments, and maybe have a chance to sell in the future and get out of that debt, or they'll give up now, give their home to the lender and become renters again. They have nothing to lose but their pride and their credit, which was not good to begin with, and can be mended in time. They gambled and lost.

    Bookmark   September 4, 2007 at 3:21PM
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Hey, thanks for explaining the earthquake insurance thing! I hadn't really thought about it before, but now that you've explained it I "get it"!

The attempt to "grandfather OUT" homes built BEFORE the most recent wave of earthquake-proofing.

    Bookmark   September 4, 2007 at 4:34PM
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O.J. missed one thing about pensions. The company has to continue in the black to be able to issue those pension checks! (Perhaps his are government pensions.)

    Bookmark   September 4, 2007 at 5:54PM
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I asked our CFP about the security of my pension. It's a large company and he said that starting next year, companies are going to be required to more fully fund their pension funds - so unless it's a small company in danger of going under, it should be OK.

It's a big concern for us because DH's pension will be from the same company....

    Bookmark   September 5, 2007 at 12:12PM
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Regarding my pensions ...

two of my pensions are from the government, one a freebie, that everyone who fulfills certain terms of residence gets, including spouses in an earlier generation who never worked outside the home for pay. It's about 40% of my total gov't. pension amount, and if things get really tough, they can say, "Sorry, folks ...." and discontinue it.

The other one is a government managed contributory one that began in the mid '60s and is mandatory for every income earner above a certain low level of income.

There'd be a lot of screaming if they cut that heavily, but some of us who retired in earlier years got a better rate of benefit than some more recent retirees. They've increased the amounts of contributions recently, but ...

... when the boomer crowd (soon) retires, there may be some problems with it.

The third, about half of the total, is a contributory one operated by the mainline Protestant church where I operated as a clergyperson for a number of years. Shouldn't have a pension system restricted to clergypersons ... for they live so darn long!

With the shrinkage in support for many traditional style churches, plus some added liabilities related to aboriginals suing over damages suffered in residential schools that were mandated by the government but operated by a number of churches for a number of years, they may have problems in future.

I don't know what percentage of their pension entitlement is funded, but think that a substantial portion of it is.

All of the pensions are at least partially indexed: I get regular increases.

There's a major plus, as well.

If all three of them die, I expect to be still flying.

I'm nearly 80 years old, don't forget ...

... what's my life expectancy ... another 25 years?

Maybe ... maybe not!

I think that I need to rebalance some of my holdings into energy stocks, and have a larger proportion than I feel comfortable with in telecommunications, at present.

I have too small a proportion in resource stocks, as well ... and recently was sold out of one manufacturing situation that was bought out by a foreign agency and taken private.

Another major Canadian company being taken off the market, too ... bought out by a pension fund or two ... plus a New York-based M & A facilitator.

And several other Canadian mining, forestry and other resource companies have gone off of our market within recent years ... bought out by larger agencies, mainly foreign and several of them private.

Currently I'm still saving and investing, living below my income.

It sure is nice to have a cushiuon ... not to have to worry about whether one can meet necessary payments next week ... or buy food ... or pay rent ... or have to choose as to which of them is to go unpaid if one buys the meds that one needs.

I'm thankful too to have not needed to have taken a pill in probably the last 30 years or so.

I've lived in about 22 locations during my 78 years, so haven't made use of the Canadian tax advantage of paying no income tax on increases in value of one's owner-occupied residence. But our mortgage interest is not deductible, as in the U.S.

I've just been picking rocks on my landlord's field from which he just harvested sod, putting them into potholes in the driveway. Also, sod-cutting equipment and rocks don't get along together very well. But that's finished, as he's planting hundreds of pounds of grass seed on a large area of recently harvested land, today.

I just picked my first tomato - plants are as high as my shoulders. Expect to use landlord's chainsaw when it cools down this evening to cut some branches to use to stake my second tomato crop - four or five dozen plants (but some so small that I doubt whether their green may produce any red before Jack Frost turns them black).

Good wishes to all of you for financial stability - and increasing knowledge of how to keep it so.

ole joyful

    Bookmark   September 5, 2007 at 4:45PM
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My DH also has a government agency pension, with full medical/dental retirement health benefits on a modest premium. The downside is that one's Social Security is reduced (the employer withdrew from SSA about twenty-odd years ago) by 60%. It'll be enough to pay his Medicare B when he gets to age 66, but that's about all.

    Bookmark   September 5, 2007 at 10:16PM
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Well after skimming posts I'm not sure I see any real hard discussion about how to financially survive a recession or a depression. I'm going to try to google it at some point but it will probably take some digging. As pundits finally start talking a recession, I start worrying about a depression. The British run on banks is fairly scary.

Here is a link that might be useful: Greenspan on recession (if the link does work just google

    Bookmark   September 18, 2007 at 5:45AM
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Well, as olejoyful said, "Currently I'm still saving and investing, living below my income."

That's the secret. Plain and simple. Can you live on 10%, or 15%, or 20%, less than you make now? A lot of us have a hard time doing that, I'll be the first to admit.

Not being one who gets stampeded by the media, I like to look at long-term fundamentals. They are extremely good, so our portfolio is going to remain invested right where it is, which is about 85% stocks, 35% of which are overseas funds.

When the Dow took a real nosedive after the dot-com failure, we lost 26% of our portfolio, which at that time was heavily weighted towards an S&P 500 index fund. My husband asked if we wanted to do anything. I told him absolutely not. We would stay invested just as we were to take advantage of the eventual upswing. Sure enough, our portfolio recovered 100% within 18 months (not in percentages, but in actual dollar amount) and from then on performed in double-digit figures all the way through the end of 2006.

I don't expect to do as well this year and possibly not even next year. But having diversified the portfolio further in mid-year after some professional advice (we piggybacked onto my MIL's CFP advisor), we're well positioned to stay ahead of inflation and get a decent return. Gotta plan for the next 30 years, so taking the long view of things is the only way to go.

And in the long view of things, this is a panic, not a recession. The vast amount of money circulating in the world is handled on an institutional level, and very little of what happens there will actually affect the majority of people's day to day lives. Realistically, are you going to stop buying laundry soap? If your refrigerator breaks, are you going to buy another or live without? The fact is, it really takes a lot to interfere with people's daily routines. Even New Orleans washing away didn't affect the majority of US citizens. We could probably lose Washington DC and never notice except for the lack of hot air wafting around (sorry, political humor inserted there).

The melodrama in newspaper headlines and TV newsblurbs is heavily weighted towards the sensational, with very little balanced factual analysis behind it.

    Bookmark   September 18, 2007 at 12:10PM
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Thank you very much jkom51! An eloquent summation of what every person needs to understand if they really want to get ahead and buffer themselves agains the vagaries of the economy.

    Bookmark   September 18, 2007 at 5:00PM
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When I said that I'd been saving and investing, that's not quite accurate in terms of recent activity, as I've been saving, but haven't what I call "invested" for a while.

I have some money in my jeans, as I mentioned earlier, ready to invest, but I figure that markets have been higher than I like for a while and have an idea that I may be able to buy some stocks cheaper before long.

As I heard one mutual fund manager say, nearly 25 years ago when I sold mutual funds for a broker for a year, a manager who's developed a good track record over the years, "I like to buy a dollar for 40 cents".

By the way, the Canadian Dollar, which could have been bought for about 65 cents U.S. about 5 years ago, would have cost a U.S. buyer 97 cents U.S., today.

Too bad some of you hadn't bought Canadian Dollars, back then!

Hasn't helped my U.S. stocks' valuations, though!

Good wishes for making good plans for all the different facets of your life.

ole joyful

    Bookmark   September 18, 2007 at 9:24PM
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Well, by buying into an overseas fund when the Euro was $.89 to a dollar, whereas now it's $1.39/dollar, my IRA has done pretty well (boy am I glad I rolled over all my previous 401k's to one consolidated IRA account finally!).

    Bookmark   September 19, 2007 at 1:11PM
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Glad you got lucky jkom51 - my Morgan Stanley tech stock took a huge dive and though I waited years it never recovered. So not only did I lose a lot of the initial investment but all the time spent when the money left could have been doing something.
Nice brag on the on your latest-congratulations.
Anyone with any other ideas for recessions, depression? Bonds, treasuries, real estate, savings accts, mattress?

    Bookmark   September 19, 2007 at 6:25PM
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Yes, I did get lucky with the overseas fund, but it was mostly because I took the advice of the independent CFP I used to work for! He was telling his clients that he wanted their portfolios to hold a little more overseas stock during 2005 and 2006. So when I left his employ, I followed the advice he was always giving his clients on consolidating old 401k's. It really did make things a LOT easier to just get one statement instead of four different little ones.

I divided my account up into half S&P 500 and half overseas because my account is very small compared to my DH's 457/401 accounts. I allotted a smaller percentage of his accounts to overseas, but instead by accident because he increased his paycheck contributions (which I forgot to account for), more went into the overseas fund than we meant to put in. It was a fortunate accident of timing, certainly not because I'm that prescient, LOL!

When I rebalanced DH's portfolio just before the subprime turmoil, I lowered the percentage of overseas funds but it's still at the 38% mark since we're aggressive investors.

Do you consider this a brag? I'm surprised, since I've already admitted I was dumb enough to lose 26% of his portfolio in 2000-2001. The only smart thing I did was hold on and not panic! I think there's plenty of people who lost much less during that period - now THEY were smart! We could have been much more conservative if we had diversified earlier and had less of a loss during that time.

Aren't most CD's still paying 5%? Put your money in that if you're worried - there's no management fees to subtract and you get the guaranteed rate of return. As long as you don't need the immediate cash, it's safe and secure.

    Bookmark   September 20, 2007 at 3:46PM
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I don't think everyone has the same comfort zone. My late inlaws remembered growing up in the great depression. They had cash stashed everywhere (she sewed it into the drapery hems and he buried some in the back yard). However, during the great depression, there was no FDIC; people went to the banks to withdraw their savings and the banks had closed their doors.
If one is concerned about that happening, then the mattress is the way to go. But then, inflation will eat away at the value of that "savings account".

As far as surviving a recession, I believe that jkom is right. I also lost about 1/4 of my 401K in the early 2000's because I was too heavily invested in individual tech stocks (at the time I was managing it myself). Had I been diversified in less volatile funds, I'd have been better off. Hindsight is 20-20.

Taking a long term view, having an emergency fund, taking an overall conservative approach to money management are all key to surviving a recession (just mho).

    Bookmark   September 20, 2007 at 4:21PM
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I have to be honest, Mary, I think you're searching for the financial equivilent of the Holy Grail. You seem to be looking for specifics; a sort of primer for coping with recessions... I don't believe any such thing exists.

You seem unsatisfied with saving, living below one's means, and diversifying the allotment of one's "investment dollars". There isn't a "12 step program", as far as I know; but I may well be mistaken.

Life's a crap shoot! You do the best you're able, sometimes you lose, sometimes you win... and you learn to figure it out.

Maybe you should check out the MSN Your Money forum... lots of very smart people over there who will definitely "lay the skinny on you". It's a good forum!

    Bookmark   September 20, 2007 at 4:54PM
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For my major assets, I want solid, strong, dividend-paying companies (except for Berkshire Hathaway), as they usually drop much less than the more volatile ones in tough times.

Those are my long-term, dependable things - the ones that I want to be around when reirement comes knocking at my door ... especially if my health is such, or stress in the workplace such, that I welcome retirement.

I play the risky games with a small percentage of my total asset - I have held telecoms, but very little of the ones involved with the high-tech bubble that burst, splattering bubble gum over many folks' faces, a few years ago.

Not wise to put major money into such volatile things, especially when they've been growing like crazy for a while.

With my core things, I just buy 'em and leave them sit.

Perhaps I could be making slightly more return on the 8% or so of investable money that I'm carrying in bank accounts, money market, etc.

But I'm not too worried, as I don't expect to have it there very long .. and the difference in after-tax return would be more or less peanuts.

And, especially in the Canadian context, I don't like earning interest.

Interest is taxed, here, at top rate - much higher than that on dividends on Canadian stocks.

Interest earned means that, while the principal can't shrink, it can't grow, either. That requires that I take a good portion of the remaining after-tax interest, to add to principal in order to keep purchasing power intact.

I prefer to buy a good stock, let it grow, over time, and see the dividend payout increase as the price of the stock does.

That looks like double-barrelled gain, to me.

Being taxed at low rate on much of the dividend income is gravy, to me.

And not needing to be taxed on the growth in value of the stocks until I liquidate, a tax deferral, suits me just fine. It is more or less equivalent to, or similar to, a tax-deferred retirement account ... but when I liquidate (my choice) I get some freebies, which don't happen with the retirement account.

Then, when I sell them, getting half of the gain free of any income tax suits me just fine, as well.

Do I worry much about fluctuations in the market?


Sir John Templeton, and various other money managers, planned to stay fully invested, all of the time.

Actually, I think that is wiser.

Then, as markets drop substantially, borrow some and buy more, cheap. As the price rises, use some of the savings that you'd been collecting to buy more, later, to pay down the loan.

And I've been following (but, so far, only partially investing in), a system that takes a couple of hours a year to manage and whose Canadian component has grown at about 14% over 20 years, something over 20% better than its underlying average.

I don't know the rate of return that the comparable U.S. system has produced, and it might need some tweaking, for it's based on the Dow Jones Industrial Average, which is a very small component of the total U.S. market system.

Good wishes for wise maney managment and increasingly skillful investing.

And don't forget ... some losses here and there are the tuition fees in the University of Leaning How to Manage Money (and pay less income tax, or later) - or so the investment group that I've attended monthly for about 7 years says.

They meet all summer - say that money works 24/7/12.

ole joyful

    Bookmark   October 1, 2007 at 7:51PM
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Preparation is key before and during a recession.
Take control of your finances
Determine what spending needs can be eliminated
Find ways to save money
Look for possible ways to earn addtional money
Secure your current income
Attached is a link to a free Recession Survival guide website that contains some useful tips

Here is a link that might be useful: Survival Insight: Free Recession Guide

    Bookmark   March 19, 2009 at 1:55PM
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We've certainly seen some changes in the investment games since these comments!

I wonder how pleased the posters have been with their strategies?? And how many amendments have been made?

ole joyful

    Bookmark   March 21, 2009 at 3:01AM
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Hi, Joyful, hope you are doing well these days! I was wondering who resurrected this older thread. So much has changed, hasn't it, from when it first started.

For us, nothing has changed on a daily basis. My DH is still working, we're still contributing to his 401k. I check periodically (not often, LOL) to be sure our overall diversification percentages are where I want to be positioned for the medium-term.

Our portfolio is down in the mid-30's percent. I don't worry about it since we don't need to draw the money and hopefully will not need it even when DH retires in 2010 with his old-fashioned defined benefit pension and retirement health bennies. Our mortgage is paid off and my MIL, who lives with us, helps with 1/3 of the expenses.

The market's been a wild ride and I expect that to continue for at least another quarter, more probably two or three.

We're doing maintenance and a few small extra home projects, but the new range I lusted after is definitely on hold for now. There's some other stuff that will be necessary: DW, water heater, and possibly the furnace, so those take priority over the "wanna haves".

Assuming the Fed properly implements its future plan to withdraw the excess funds out of a recovering economy, things may even out better than we hoped when all the craziness was at its height.

Couple of interesting articles read lately:
1) EU is having difficulty dealing with its recession because politically bailouts are OK but layoffs are not. This will cause difficulties for them down the road, obviously.
2) Several areas where foreclosures were greatest in CA are now seeing a huge uptick in sales, complete with multiple bidding wars. This validates the experience of some friends who are trying to buy their first home here in the SF Bay Area - all the homes they are looking at are short sales, and there are serious bidding wars. They have just entered contract on a home nearby; they beat out 19 other bids.

These are all homes that fall under the jumbo loan limit. There is talk that they will raise the jumbo loan limit, and if they do, there may be a substantial pent-up demand to help perk things up.

    Bookmark   March 21, 2009 at 1:19PM
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