People always wonder what is the best way to protect yourself in a recession. The answer is simple, you need to be more liquid. There is nothing that will make you feel more secure than having access to your own money. That isn’t to say that you need to completely forsake long term investments because they are just that, long term investments. That being said you need to have access to money just in case something happens. I always try to have 6 months of cash available in a savings account in case something happens. The reason I choose a savings account instead of something like a CD is because although I only get a 2.75% interest rate there are no penalties for early withdrawal, which exactly what I am looking for. Additionally my savings account isn’t subjects to the rise and fall of the market, making it impossible to lose my money. Always remember having a ton of money does you no good if an emergency happens if it inaccessible.
Chips – First of all, snack chips are great additions to your children’s school lunches. But you can use them as more than snacks. You can also add them to dinner dishes like casseroles like Betty Crocker’s Chipotle Red Beans and Rice Casserole to give your dinner a little extra crunch.
Potatoes – While many different types of produce have become increasingly expensive, the price of potatoes has remained pretty flat. Potatoes can be used to make many different dishes such as mashed potatoes, potatoes au gratin, baked potatoes…you see where I’m going with this, don’t you?
Pasta Noodles – Pasta is one of my favorite foods, so I was thrilled to see that it hasn’t really been afflicted by rising food costs. Adding an inexpensive jar of sauce (caught at a sale price) will help you create a dinner your entire family will love.
Chicken – Unlike expensive beef, chicken has experienced a relatively stable price. There are as many ways to prepare chicken as there are stars in the sky. Add mayonnaise to baked chicken to make chicken salad for sandwiches. Or bake in a creamy sauce for a lip-smacking entrée. And, who doesn’t love friend chicken? Peruse your favorite cookbook for more ideas.
Flour/Sugar – Staples that are used in baking are very economical choices while you’re grocery shopping. Forget spending tons on pre-packaged desserts. Instead, you can bake your own cookies. Flour will also stand in as an inexpensive breading for meats.
I am definitely no expert when it comes to finances but I was thinking of going this same route. Now that I see that Warren Buffett, one of the most intelligent money-makers to ever walk the plan is thinking along the same lines. It really assures me that I am not crazy. Check out this article that ran in the NY Times. It tells you where Mr. Buffett is putting his money.
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.