.
January 3rd, 2009
03:40 PM ET

Ok, you lost your shirt. Here's what you have to do now:

Ali Velshi
CNN Chief Business Correspondent

You could not have escaped 2008 unscathed.

*The Dow ended the year 33% lower.
*The S&P 500 ended 38% lower
*The NASDAQ was down more than 40%

Even if you followed all the rules and diversified your savings, you lost 30-40% or more in 2008. Virtually nothing could have saved you.

But history tells us that big opportunities follow those kinds of
declines. And you can start building – or rebuilding – your wealth right away.

Friday's massive market rally is a perfect example of why you can't be trying to wait out this market turmoil.

You have to be in this market, period. A lot of people don't want to hear that but unless you have a rich uncle who is about to pass on and leave you a small fortune, the markets are the only real (legal) way to create wealth. And you can take part in them without become a trader, and without buying a single individual stock. Spend just a few hours learning about how markets work, and how they can work for you, make a few tweaks to your 401(k) or IRA, and you're on your way to a more secure financial future.

YOU HAVE TO DO IT.

Take these 10 steps right now to become a better investor:

1. Pay off any debts costing 10% or more per year before investing for retirement.

2. Take a "risk tolerance" test to find out what kind of investor you are, and don't put money you'll need access to within five years into the market.

3. Tax-advantaged savings plans – especially those to which your employer contributes – are just about the only "free money" you'll ever get.

4. Asset allocation – the appropriate distribution of your money
across several types of investments – lowers your risk AND earns you
a higher return than if you just invested in one or two types of assets.

5. Understand how different "asset classes" work. Take a few hours
to learn the key features of stocks, bonds, cash equivalents and
alternative investments.

6. Mutual funds, index funds and Exchange Traded Funds (ETFs) give
you instant diversification, with less risk than owning individual stocks.

7. Keep your investment costs low. Fees, commissions and expenses
can eat a big chunk of your returns over time.

8. Rebalance your portfolio at least once a year. Keep your portfolio aligned with your "asset allocation" by selling some of your winners, and buying more of some investments that have suffered.

9. If you leave your employer, roll your 401(k) over into an IRA immediately. It's the only time you can convert your 401(k) into a retirement vehicle with many more options.

10. Remember that investing takes discipline, but it allows you to
control your financial future.

Watch Ali on CNN at 3pm Sunday as he introduces his new book, "Gimme My Money Back: Your Guide to Beating The Financial Crisis"


Filed under: 360° Radar • Ali Velshi • Economy • stocks
soundoff (128 Responses)
  1. Timothy

    A less risky strategy is to play the dividends, especially on a monthly and quarterly basis. There are 'bargins' out there, but best check the financial conditions of the company and the dividend history. A 'jewel' today at 8% could drop to 2-3% based on debt and financial condition.

    January 4, 2009 at 4:18 pm |
  2. Mike in NYC

    By recent standards of volatility, Friday's rally was not "massive."

    I'm still contributing to my 401(k), but not my Roth. I'll wait and see which way things go, but I'm seriously considering calling it quits.

    January 4, 2009 at 4:05 pm |
  3. Bob Murphy

    "...unless you have a rich uncle who is about to pass on and leave you a small fortune, the markets are the only real (legal) way to create wealth."

    What a load of hooey.

    My parents started a small manufacturing company in the early 80s and became multimillionaires. Bill Gates/Paul Allen, Larry Ellison, and Richard Branson all started companies. Lou Gerstner (IBM) and Lee Iacocca (Chrysler) took floundering companies and made them profitable. All of them created wealth, and all of them became wealthy.

    Wealth is created in the economy by work and intelligence transforming things of lesser value into things of greater value. Inheriting money from your uncle doesn't create wealth, it just transfers it.

    January 4, 2009 at 3:56 pm |
  4. Eric Gurney

    The best 4 investment tips on cnn from someone who knows what there talking about.
    If you want to make money in this economy, you have to use common sense and be conservative yet confident.
    1.Buy corporate bonds from the fortune 250 companies.
    2.Municipal bonds are also a safe bet in the right counties.
    3.Cash in banks is now FDIC insured up to $250,000
    4. Investment property is a good defensive investment at the right price and interest rates are at an all time low, with a good rental market.
    There are plenty of safe ways to make money using traditional investments. Investors need to stop being negative, spoiled brats if they got there hands caught in the cookie jar and pursue smart investments.
    Eric

    January 4, 2009 at 3:45 pm |
  5. Mike

    Fat Chance! When execs reduce their pay to reality levels and the market is based upon real earnings, then perhaps it will be time to look at investing there. But, not as long as gains are based upon market manipulation and where the share price (i.e. trend, top, bottom, etc.) is going. Investing this way is simply gambling!

    Top execs should be paid reasonably (millions are excessive), and profits should be re-invested wisely or returned to stockholders. Why invest in any company where most of the profits go to the execs?

    January 4, 2009 at 3:29 pm |
  6. BillS

    "Friday’s massive market rally is a perfect example of why you can’t be trying to wait out this market turmoil....You have to be in this market, period."

    Hey Ali Velshi, that advice sounds like what my Merrily Lynch broker told me, as he sold me high commission declining stock that his higher value clients were dumping. You left out "I really feel these stocks are undervalued"..."We need to rebuild your portfolio" (after his recommended LTV Steel, EAL, WAL crashed).

    January 4, 2009 at 3:24 pm |
  7. Anthony DeBottis

    If you are already drawing on your retirement nest egg, watch it very carefully. Us the 2percent rule. If it drops more than that get out of the market. Have a safety valve on your stocks, if it goes below a certain dollar value sell. If it goes up raise saftey valve so your can retain a profit.

    January 4, 2009 at 3:23 pm |
  8. Betsy

    I am shocked at how down people are on equities. This kind of market correction happens every so often– this is the time to BUY– not when stocks have been going up for 6 months. Unless you need your money in the next 5-10 years, this is your chance to pick up great deals trading at 7-8 P/E ratios. No area is totally safe– stocks, real estate, bonds, internationals, etc. You just have to keep a diverse portfolio and know that you are going to have up and down years. But if the last 100 years have been any kind of guide, there are going to be a lot more ups than downs. Don't lose heart, folks! But wait until I've bought my stuff to get back in! 🙂

    January 4, 2009 at 3:21 pm |
  9. shirl

    To Bill, it is not junk science. Wake up and think of it this way. Have you ever heard of a black out. It is what happens, for example, in the summer when everyone is sucking up the electricity for thier AC when it is so God Blessed hot that people are dying from the heat. Now if those who could afford it had solar panels and or wind mill while that sun was shining down burning us up, we could use that. At that time of the year it would more then likely generate so much electricity that you would be selling some back to the electirc company. Now, for those that feel that they cannot afford it, their are many large grants available from the goverment and other places. You also receive a fat tax break for a few years after it has been installed. My husband and I have researched this in depth and feel that this is not only not "junk ", as you call it, but it pays for itself and saves so much money that you would be stupid not to do it. Especially in California. Thus avoiding the overload of your electrical company which would of course avoid a black out.

    January 4, 2009 at 3:13 pm |
  10. Madi

    And yet we have the people who are reaching retirement, no 401, or job, or hope of job. God help them

    January 4, 2009 at 3:08 pm |
  11. Charles

    As our President Truman once said, "If you cannot stand the heat, stay out of the kitchen". Do not buy stocks or mutual funds if you cannot stand to lose money. Sometimes you win and eventually sometimes you have to take a hit. It is all a gamble, just like the horse races. One does not see consistent winners there either. Sock your hard earned money in a bank until you feel safe enough to gamble with the possibility that you might lose. Above all, stay away from hedge funds, derivatives, and options such as puts and calls. Those are for the more "sophisticated" speculators.

    January 4, 2009 at 3:02 pm |
  12. Jim

    Have you ever wondered why a government crippled with debt allows you to avoid taxes and buy into a 401K’s or Keogh’s plan ???
    Simple :those amounts of money are under government intense surveillance and control and these amounts are given as collaterals when government borrows from foreigners.

    January 4, 2009 at 2:50 pm |
  13. Randy

    Diversivication does not just mean different markets or asset classes of stocks or mutual funds. You need to be diversified across different investment types. Stocks, commodities, and real estate. All three have taken a hit: real estate over the past couple of years, stocks in October and November, and commodities (especially energy) in December. Even gold is off its highs. This is unprecedented. All three are cheap. Spread your investment around.

    January 4, 2009 at 2:41 pm |
  14. EJ (USA)

    I don't have any money, but if I did I wouldn't be sure what to do with it.

    Thanks for listening.

    January 4, 2009 at 2:26 pm |
  15. nan

    ........said the spider to the fly.

    Don't be stupid. The fundamentals are not there yet. It is like poking your money in a slot machine and keeping at it because you think you will win over time because you are "wishing really hard". That's gambling.

    Investing is different. Get a backbone instead of a wishbone and do the work.

    January 4, 2009 at 2:21 pm |
  16. kathleen

    Ali,

    How much $ needs to be added to the 401K market to compensate for the baby boomers retiring?

    Kathleen Linville

    January 4, 2009 at 2:15 pm |
  17. Al

    Pretty simple concept I would think... buy low, sell high.

    January 4, 2009 at 2:15 pm |
  18. Paulie the Dog

    No, I don't have to do it. There are alternatives to the stock market which are presently more and more attractive. Real goods and fungible assets easily convertible to cash will make it easier to plan into the short term, and paying down debt is also a very good idea. As for me, I'll rely on these two strategies before I start sniffing around the market pole.

    Right now, my market instincts tell me to, "Piss on it."

    January 4, 2009 at 2:05 pm |
  19. Michele

    Thanks Ali Velshi, this was a great show. Gotta buy his book. Get this guy on twitter, would ya?!

    January 4, 2009 at 2:02 pm |
  20. Henning

    Ali is right

    It hurts to face the facts, but number one, get rid of your debt
    my wife and i sold our house just to get back to zero.
    now every dollar we make WE have control of (not the bank)
    and everything in the markets is on sale
    This make doing Ali's steps 2 through 10 easy
    and should we lose $3,000 in a month, it is still $1,000 less than
    the $4,000 a month in interest we were paying to banks each and every month

    January 4, 2009 at 1:32 pm |
  21. Boris R.Del Mar

    In My Intervention I did not cite an example, of the benefit of lenghthening the terms of repayment , the result is dramatically beneficial to the user by making the transaction possible, for example, let us immagine a 400000 mortgage normally at 40 years, would demand payments (this is not an exact calculation but approximate) of 2 thousand per month, while at eighty years approx half that, a figuer that makes things possible., The same for all other assets, if used universally it would double the credit available, rendering a doubling of purchasing power.

    January 4, 2009 at 1:30 pm |
  22. SJ

    Oh, and Bill:
    Your reasoning and conclusions about "environmentalist extremists" are hilarious to me. Unfortunately you and your ilk will wither under a new administration that understands and is willing to face up to what the rest of the world has known and addressed for some time: we are negatively affecting the Earth's environment in an unprecedented way. The economic future of the US will reply on innovation aimed at mitigated damage done. Stop allowing yourself to be spoon-fed by Rush, Hannity and Beck. These guys are ENTERTAINERS who will say anything to appeal to people like you. Forget Gore. Read the science, all the science, and then report back your conclusion. Think critically for yourself – for all of us.

    January 4, 2009 at 1:26 pm |
  23. Laurie

    This is a case of the blind men and the elephant. You recommend stocks because that is what you know best.

    The elderly people I knew who lived through the Depression put only a small part of their money into stocks. Instead they truly diversified – into income-producing real estate and CDs and hard work, as well as stocks. They selected stocks for the dividends, not for the phantom prices. They had the experience to know that fast earnings make for fast loses.

    I own an apartment building and I'm in great shape because people who cannot buy a home need a place to live until the economy moves on to it's next stage, whatever that may be. It certainly will not be prosperity built upon debt as in the past. Until I can see more clearly what it may be, I will stay out of stocks and keep my cash at the ready.

    January 4, 2009 at 1:12 pm |
  24. Jeff

    This economic downturn is pure example of failed leadership on so many levels and pure greed,sure lets loan money to people who we know can't afford this house and lie,now us has taxpayers must "loan" them the money to save them,but yet Bush and Congress(Frank and dodd) didn't know anything was wrong,you've gotten to be kidding me?
    Now were in a recession which is probably going to get worse,and with Obama coming into office,which means higher taxes.No wonder the approval ratings are so low for our president and congress,Shame on all of you AIG,Fannie May,Freddie mac,Ford,GM!
    You saw this coming and did nothing.

    January 4, 2009 at 1:11 pm |
  25. Ernest Sedgwick

    I made money last year. I did not listen to experts advice. I am three years in to retirement at 55. The bigger issue is I saved in excess of fifty thousand dollars in a retirement year. No dept, no credit. I think the vocal experts are broke.
    PS I paid social security off two years by working seven day weeks.

    January 4, 2009 at 1:11 pm |
  26. Robert Mangold

    The 'experts' want us all to get back into the market. My risk posture says no thanks- at least for 80% of my retirement funds. I'm willing to risk no more than 20% of my hard-earned income. Using CDs and other fixed funds, I can make 5% return, protect my investment, have no broker fees and know pretty closely what I'll have in 10 years. I can plan my retirement around it. A good thing to look at is the Government backed I bond (inflation bond). If I read it correctly, it's now paying 5.5% approximately. Greed at all levels is why we are in the crisis we are in. Individual investors with steady, ample savings rates can get a predictable, decent return. Investing in the market to get that extra 3 percent return is another form of greed. We need to reach a more sustainable economy, where investing in things that harm the environment and extend our spending with credit money we can't pay back is not a great formula for a sustainable economy. It should be ok to live within our means....what a crazy notion- don't buy something unless you can pay for it...

    January 4, 2009 at 1:07 pm |
  27. Al Zachary

    Hey Noel Cook, let me guess. You're a real estate salesman and investor – EXACTLY the people who got us into this mess. What is this fantasy about real estate being readily convertible into cash?

    Real estate speculators have been totally wiped out and are now begging for bailouts. They would rejoice at a loss of "only" 40%.

    January 4, 2009 at 1:07 pm |
  28. Randy

    what about those that are retired and living on ....oh yea they lost everything last year...sure they are ready to reinvest...actually they are out looking for a job.....or should I say competing for a job that the young and newly educated are going to get....get real there are a select few that will be able to rebound....rich get richer....poor go on licking their wounds

    January 4, 2009 at 12:41 pm |
1 2 3