Deer in the Headlights

I am off the grid for a mere 5 days (our annual Yosemite trip), and I come back to find our nation's financial system teetering on the precipice.

Coming back to all the news reports, which I still haven't quite sifted though, my general mood about the future has gone from nervous trepidation, to helpless and overwhelmed angst.

Let me start by saying, we are a very average American family. We don't have an army (of accountants, financial advisers, lawyers, tax preparers etc.) at our beck an call to offer advise and expertise. We also come from working class families, so we really don't have any trusted relatives we can turn to for this type of advise.

While my gut has been telling me we were headed for rocky economic times, I have been at a loss as to what actions to take in response. The vast majority of our savings is in 401k (except our down payment). Back in January I attempted to read up on my 401k investment options to look for a safer choice going forward. But with all the disclaimers they put in, its really hard to tell what the true risk is for each fund....even the money market and cash reserves seem to have large disclaimers about no guarantee on your principle. Needless to say, I didn't get very far, and gave up. In hindsight, I would have been much better served to have found some help on this.

At this point I am a bit like a deer in the headlights. To preserve the purchasing power of our down payment, I feel we should buy a home soon, as a hedge against inflation and higher interest rates. But at the same time I don't want to purchase a depreciating asset, which is also a quick way to lose our down payment.

I have developed this nagging feeling that I need to be doing something to prepare ourselves financially and physically for hard times ahead, yet I am at a loss as to what exactly those preparations should be.

I am also starting to wonder if I would be better off in ignorant bliss. I would love to know what others have done in response (to the future prospects of our changing economy), if anything.

A tragic 401k reminder from Bear Stearns ...

For years I have been listening to financial pundits on tv tell us not to invest our 401k's in the company that we work for. For all of their claimed financial savvy, apparently many Bear Stearns employees failed to heed this advice and are now likely to lose not only their jobs (it has been reported that J. P. Morgan will can 50% of the Bear Stearns employees), but have also lost virtually all, if not all, of their retirement, and for some, life savings.

I don't profess to be a financial person, but those that I listen to are adamant about diversifying retirement and savings. That means never invest in the company you work, so that if it fails, you only lose your job, not your job and life savings. It also means investing outside the sector that you work in ... After all, how good of a plan would it have been for a Bear Stearns employee to invest all of his/her 401k stock in Thornburg Mortgage (now trading at less than $2/share)? Many of the pundits recommend investing across a minimum of 5-7 other sectors.

Even knowing the advice of the pundits, I am regularly guilty of being too invested in cash equivalents (which historically pay too little), or too invested in one sector. I wish I had the self-discipline to follow the advice of the pundits!

Paul