Finance Fridays

This week in review: Lehman Brothers claims bankruptcy, - their stock which was at $60 at the beginning of the year was at $1 Monday morning - AIG receives an $85 billion bailout by the government, the Dow Jones sees its biggest drop since September 11, 2001. What does this mean? Should we push the panic button and pull all of our money out of the stock market and banks and hide it under the mattress? As discussed in a previous post - hiding money under the mattress doesn't do anyone any good.

A history lesson: October 29, 1929 the stock market "crashes" leading to a 10 year economic depression which would come to be known as the Great Depression. What happened? The U.S. had just come out of the roaring 20's. It was a time of great wealth and the stock market was reflecting this. A recession hit in October of 1929 and stocks started to decline. The market was still above average - but because of the wealth seen earlier that decade the decline was felt a little sharper. October 29 people hit the panic button.

Conclusion: Do NOT hit the panic button. If you have money in retirement funds, mutual funds, or index funds - leave it. You signed up for recessions like this when you decided to invest long-term. These funds are built to withstand recessions and will turn around when the economy starts to turn around - you would lose money if you pulled out now. If you have money in a single stock and that stock has dropped more than 7% then you should think about pulling out. Do not let your pride make you lose all of your money. If you do not have any investments do not think about investing right now. I have a feeling we aren't through with this recession yet and it may get a little worse before it gets better. My philosophy: invest high, sale even higher. Watch the stocks and see which ones handle this recession the best - those will probably be good buys a year from now.

Work hard to pay off any debt you may have, save your money, and when the market starts to swing back up prepare yourself for the next recession. Yes, the laws of physics apply to the stock market: Everything that goes up, must come down.