During the past few months we’ve witnessed quite a stir in the financial markets. Company’s flounderingin debt are beginning (or already have) to sink. Company’s with substantial cash positions buying up under-performing ones at bargain prices. The stock market bouncing up and down like a dingy in a hurricane. Which ever way to look at the financial marketplace, times are certainly uncertain. That’s why today is a great day to invest.

True investing is placing your money somewhere that isn’t going to be touched for at least five years. This will allow it to grow through seasons of ups and downs. When we find ourselves in a season such as this, where everything seems to be hitting 52-week lows or underperforming, we should be looking for every spare peny we can muster and get it invested. It’s kind of like shopping the day after Christmas. There’s this huge balloon of shopping that goes on for about 6-weeks and then all of sudden, it pops. It’s over. The shopping rush is over and every store wants to clear out their remaining inventory. Prices are slashed 70% to 80% off the retail price and deals are sitting on every shelf. If you’re smart (and don’t mind waiting to open presents for an extra day), you’d hold onto all your cash until December 26th and then buy, buy, buy!

That’s the kind of market we are in. For those with cash it’s time to buy, buy, buy! There are great deals everywhere just waiting to be had. It’s a rare time in history (only 4 or 5 times in the last century) that the market has offered so many good funds and company’s at such attractive prices. Don’t get stuck looking backward in a few years when prices have rebounded only to say “I wish I would’ve invested more”, because by then it will be too late to capitalize on the deals that are currently abounding.

Recession. It’s quite a buzz word right now in the media. I understand that for many people the economy is presenting larger than average challenges and their stress levels have risen. Reports suggest that consumer confidence is decreasing while foreclosures and unemployment are increasing. Not a good trend to be sure. However, maybe the term recession isn’t the best word to be describing the current economy we are experiencing these days. In fact, I’d like to submit a new word for the economic season we are in: Opportunity.

You heard right. Opportunity. We are experiencing a great economic season called opportunity and it’s a season, like all seasons, that comes and goes. While the media does a fine job detailing all of the things that are going wrong in the marketplace and at home, there are just as many positive elements that could be pointed out. Here’s a short list of the positives elements that our current economy provides that you will likely hear little about from mainstream media:

1) Reality check - A recession merely opens our eyes and exposes us to the financial missteps of our recent past. It illustrates our over-consumption of goods and services, our negligence to focus on savings and investing, and reminds us that season of huge increase/profits don’t necessarily last forever. Without this reality check, many people would get into a much larger hole than they are in now before realizing it, making it even more difficult to find a way out later.

2) Barometer – A recession gives us a good gauge as to how well our financial planning efforts are working. Are emergency funds in place? Are savings and investments diversified correctly? Are my spending and debt reduction levels appropriate? Without a good test we might not have to answer these questions until it’s too late to effectively make adjustments.

3) Opportunities Abound – A slow economy is traditionally one of the greatest times to find a true bargain in the investing world. If you’ve done a good job managing your finances prior to running into a sluggish economy, it’s time to repeat the rewards….and there’s lots of them to be had! Foreclosures, bank owned property’s, under-performing mutual funds, fire-sales, and other investments can all be found at bargain prices during a poor economic season. A few short years of downturn (short when taken in the perspective of a lifetime) to a well positioned investor (anyone with the means to buy when times are tough) equals huge profit potential and almost guarantees future financial success. For investments like real estate, where the profit is made at the purchase (more on that another time), a market with huge supply and little demand will get you any type of property you want at 20-40% below market value or less. It’s like going shopping for winter apparel in June: sale, sale, sale!

If you’ve done a good job with your financial planning then enjoy it, get out there and find your bargain investments. For those of you not in a position to go bargain investment shopping (which is sadly a large number of people), don’t worry. Use this season as a good lesson to build from so that next time around you will be able to repeat the rewards of a down economy.

Are you getting a tax refund this year? If so, there are plenty of businesses that would love for you to come do a shopping with that check of yours. But before you rush out there and slap your hard earned money down for whatever tickles your fancy, try one of these less thought of options that will return bigger advantages for you and your family:

1) Pay off debt. If you’re working your way out of debt, this is a great way to speed up that process as many people receive several thousands of dollars back. This would go a long ways in meeting your goal.

2) Establish an emergency fund. Every family should have an emergency fund of 3-6 months of living expenses set aside for a rainy day. Your refund will help get this built up quickly without touching your monthly budget.

3) Fund your retirement. Make your refund work for your future by placing it in your IRA account for this upcoming year, or max out one of your other investments.

4) Fund your children’s college. If you have young children that you would like to see go to college one day, help make that dream a reality by investing in college savings plan like the 529. A few thousand dollars early on goes a long ways!

5) Make a memory. If all the above has been done, try building a memory with a family vacation instead of the typical purchases. Try traveling with your family or spouse to a new destination that you’ve always wanted to go to, or even just across town for an evening away from the norm. Make a memory!

The final step in the investment process is determining where to place your funds. Today there are more places to put your money than ever for it to be considered an investment. However, a true investment is one that makes a good return on investment (ROI) for the investor. Finding a financial vehicle that gives a good ROI and fits into a solid 20-30 plan requires a setting a few criteria during your search. Here’s my criteria for all of my personal investments:

1) Understand the investment. If I can’t explain what the investment does, or how it will profit me over time, there is no way I’m putting my hard-earned dollars in it. For mutual funds and common stock, I need to know the basics of how the company makes money, spends money, what they produce, why they are better than competitors, and why they are going to continue to grow. NEVER INVEST IN WHAT YOU DON’T UNDERSTAND! Even if you have a personal broker managing all your assets, they should still be able to “teach” you the above information.

2) Solid Track Record. For mutual funds I’m looking for good Growth, Growth & Income, and International Growth funds that have at least a 10-15 year track record averaging 12% or better. Open up any financial magazine and you’ll find plenty of fund managers boasting 30-50% 1-year returns, but 90% of those average less than 10% over a three-year period, or they haven’t been in existence beyond a year. I’m very skeptical of those types of funds. No track record equals no honest gauge to measure the fund by. Good investing requires a marathon approach, so be leery of the “sprinter funds”.

3) The investment is ethical. I choose not invest money into a place I would not do business or whose services I would not use. That means I don’t invest in tobacco companies, foreign companies who practice human right violations, or pharmaceuticals companies that create and distribute drugs like the “day after pill”. A distant investment in a tobacco comapny is the same as walking into a store and buying a pack of cigarettes off the shelf;  it’s all supporting the same company.

4) Invest in what you know. I’m a land developer and commercial property manager by trade. I know the commercial real estate market in my area well. I know cities that are worth investing in and others worth avoiding. I know what makes one property a valuable asset and another property a liability and risk. What am I trying to say? Many of the best investments are directly related to what you know the best. For me, this means keeping a portion of my investment portfolio in real estate. As long as the ROI meets my invest goal of a 10-12% annual average then the investment is worth considering.

Check out my other posts dedicated to IRA’s, Roth IRA’s, and 401K as additional investment tools that are important to have in your investment portfolio. I’ll just leave it at you should take advantage of any long-term investment that gives a tax sheltor to the interest gained during the investment period. Compound interest that grows tax free over 10, 20, or 30 years turns into huge dollars signs in your portfolio compared to those that are taxable along the way.

The bottom line for all investing is simple: start today and do it consistently! The power of investing isn’t how much you have to start with, but by consistently setting aside a portion of your income and giving it time to grow.

Once you have got yourself in a position to start investing for the future the question becomes, “how much do I invest?” The answer to this depends on a personal evaluation. How old are you? What kind of a lifestyle do you want your investments to cover? How soon before you will need your investments to become part, or all, of your income stream?

If you are 20-30 years old and you plan on retiring in your 60’s, investing 10-15% of your total monthly income will set you up quite comfortably. If you are 30-40 years old and have no other investments or savings yet, then you should bump that number up 18-20% of your total monthly income. Now if you find yourself in your 50’s and don’t have any savings or investments, it’s not to late for a good retirement but you will have to be realistic. The power of investing is time and interest rate. The rate will be very consistent, time is limited. If you are 52 and you don’t have any real savings or investments yet, you may be looking to work a little longer than you would hope to give your investments a few more years to grow. Most the growth happens in the  late years. Watch this.

Take three people at three different ages that all plan to retire at age 65. They will each start investing the same amount at different ages, but they will all have the same 10% annual return.

John (14) invests $2,000 per year for 5 years and then stops investing. At age 65 his $10,000 total investment will be worth $1,184,600.00!

Sally (19) invests $2,000 per year for 8 years and then stops investing. At age 65 her $16,000 total investment will be worth $1,035,148.00…or $149,452.00 less than John.

Charles (27) invests $2,000 per year until he reaches age 65, at which point his total $78,000 investment will be worth $883,185.00…or $301,415.00 less than John.

John ends up earning the most income off of his investments every time, even though his total contribution is far less than the other two. This is power of time when added to your investing. While investing as much money for your future as you can is a good goal, the real moral of the story is to invest as soon as possible for your future. The longer you wait before beginning to invest, the longer it is going to take for your investments to start doing the heavy lifting you want them to do for you.

Next post we will look at where to invest your money.