Savings And Investments - How Can You Protect Yourself?

We are going to see vast fluctuations in the stock markets, in the housing markets, in the automobile industry, in technology, in the banking and financial sectors, in governments, and in international trade and currencies. And 2010 is just the beginning of these major changes. More and more people are starting to question whether their investments are solid and how they can best protect their assets.

For those of you who feel you don’t have assets to protect, you might be very surprised. Most people think of assets that need to be protected as millions or billions of dollars of pounds or euros or yen. The truth of the matter is that however much money you have, be it $100 or $100 trillion, they are your assets. And because they are your assets you need to be looking for ways to hold onto them and hopefully to make them grow.

With so many people being affected by the downturn economy and many having either lost substantial sums of money in financial institutions, banks, stocks and shares, or had their funds frozen, or had to take 60c or less on the dollar, it’s very difficult to know where to put your money and how to keep it safe.

After all, if the banks didn’t know how to look after our money, and they are supposed to be the experts, who can? In the old days, you used to be able to put your money into the bank and you knew it would be safe as houses.
Nowadays, with banks having behaved so irresponsibly – by lending to people who were not creditworthy – some were even on unemployment benefits, by lending them up to 100% or even more of the value of a property, and yet paying themselves millions if not billions of dollars in bonuses. This is one of the main reasons why we are in such a serious global financial crisis.

So what are the various options available to you?

Let’s start with the banks.
What are the advantages and disadvantages of leaving your money in a bank?
The advantages:
You do not have to hold cash on your person or in your home where it might be stolen or destroyed, (e.g. I knew an old man who used to sew his cash into the hem of the curtains in his house. He thought this was safer than having all his money in the bank. Unfortunately, he had a fire and the curtains with all his money inside them went up in smoke. So if you are storing cash, try to put it somewhere it will not be easily discovered or damaged.

You earn at least a little interest on your money. However, with most countries on very low interest rates at the moment, you might be lucky if you earn 2% or more.

By using the bank’s credit card and debit card facilities, you have the flexibility to buy goods online and by telephone from anywhere in the world. You would not have that freedom if you didn’t have a bank account.

There are several disadvantages in this current economic climate:
Governments around the world have stepped in to guarantee bank deposits – this means that should a bank get into trouble and be unable to continue trading, the government will bail it out so that it doesn’t collapse and you don’t lose all your money. This has already happened to so many financial institutions: in the UK, Northern Rock had to be rescued, in the US, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, Indymac, AIG, to name but a few…

However, given the volatility of the world economy, there is no ultimate guarantee that the governments will be able to fulfil their promise to rescue all the banks that might need help. So I would advise you to spread your money around different financial institutions. At least that way, you don’t have all your eggs in one basket. Remember to trust your intuition if you feel that a particular bank is unstable and take your money out immediately.

Quite a few banks are persuading customers to tie up their money for 1 yr, 3yrs or 5 yrs or more in a term account or a cd. This generally pays a little more interest than if the money was immediately available. However, before doing this, calculate exactly how much extra money you will be making and whether it is worth the extra risk. When is your interest paid on the deposit – do you have to wait until the end of the term? Or is it paid on a monthly basis? What happens if interest rates go up and your money is tied in for several years? Will the bank increase the rate or could you be stuck on your original lower rate? Let’s say you go in at 3% and you’ve taken a 5 year term deposit or cd with the bank. It might be worth your while to withdraw your money and take the penalty and then reinvest at the higher interest rate.

To summarise:

Advantages of using a bank:
- you don’t have to risk holding cash
- you earn some interest on your money
- you get debit and/or credit cards which give you flexibility

Disadvantages of using a bank:
- in this downturn economy not all banks are safe
- government guarantees may not be honoured

Tips:
- try not to tie yourself into any deals even if it means you lose a little interest
- trust your intuition – if you don’t feel safe with a particular bank, take your money out sooner rather than later