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[L141]Lazy Rich Take Control
by Steve Carpenter, Ste
Some people turn to U.S. Treasury bills and bonds, which have traditionally been viewed as the safest of investments because of their government guarantee. This "flight to safety," at one point, drove the yield on the three-month U.S. Treasury bill down to 0% for the first time since January 1940. When you factor in inflation, the "real" return was below 0%—meaning investors were willing to lose money in exchange for a safe place to park their money.

Another alternative is literally stuffing cash under the mattress. On the surface, it doesn't seem like a bad idea. Many bank accounts are now yielding as much as 3%, and the FDIC has raised its insurance ceiling on deposits. At the same time, the U.S. government has rolled out a temporary insurance program to prevent money market funds from "breaking the buck," or falling below $1 per share.

But, cash won't offer any returns, with consumer inflation hovering around 5% so far in 2008. Cash may not even let you break even.

There are always other options, such as commodities, real estate investment trusts (REITs) and even private equity funds. The problem is, these investments are hard to value, and difficult for individual investors like us to understand and invest in. And these investments are subject to the same economic pressures as everything else.

So, we return to what we know - stocks. Benjamin Graham (the godfather of value investing and Warren Buffett's mentor) once wrote that when we're challenged by an investment environment, we should "distill the secret sound of investment" into three words: margin of safety.

To Graham, staying within the margin of safety simply meant buying a stock only when it is worth more than its market price. How much more depends on the type of stock. For example, for a high-quality stock, you might want to pay a maximum of 90 percent of what you consider the stock's actual value. But for a troubled stock, you might want a greater cushion, choosing to pay no more than 50 percent of what you consider the stock's actual value.

Those are wise words in today's market envrionment, when all stocks are down, but only some (such as banks) are fundamentally troubled. Indeed, earlier this year, as the market plummeted, Buffett announced that he considers the malaise a buying opportunity.

"To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions," Buffett wrote in an October 17 column in The New York Times. " 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."

History backs him up: the stock market has always gone up over the long run. From 1951 through 2007, the S&P 500 Index saw positive returns in 44 of 57 calendar years, according to Thomson Financial. At the end of 2007, its 25-year average annual return was 12.83%.

Sure, getting back into the markets now feels risky. But there's also risk in doing nothing: Due to inflation, $100 left in the bank in a non-interest-bearing account will have a purchasing power of under $74 in 10 years, assuming a hypothetical 3% annual inflation.

The point is, the time to act will be coming soon. Whatever you do, don't hide. It's time for all of us to take control of our investments, stay informed, and be ready to pounce on opportunities. As Buffet said, "Be fearful when others are greedy, and be greedy when others are fearful."

Debt consolidation is likely the best way to manage large debt amounts. So many people have large amounts of credit card debt and it continues to build because they are only able to manage paying the minimum payment on the cards. The majority of that monthly payment is interest and so it is nearly impossible to get out of debt in a reasonable amount of time. Paying the monthly minimum payment can take 20 years or more to pay off a credit card, creating a deep hole for many individuals and families.

Debt consolidation is when you take smaller debts *such as credit card debts) and combine them into a larger loan. For instance, if you have 5 credit cards with a total debt of $10K that you are paying an average of 19% interest on, you can take out a consolidation loan for $10K at a lower interest rate (e.g. 12%) and pay off your loan in a set period of time, let's say 5 years. You save money by doing this because your interest is lower and also because you're making payments on the principal instead of mainly paying interest.

Having this type of loan is really the way to go to get out of the debt that you are being buried under. By doing this you can take back control of your debt and begin to really start taking chunks out of it. There is no doubt if you need a way to really get out of the credit card debt that you should be seriously considering consolidation.

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Both Steve Carpenter & Susanne Myers are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Steve Carpenter has sinced written about articles on various topics from Finances. Steve Carpenter founded Cake Financial to help people take control of their investments. Want to learn more? Join Cake Financial today for free =>
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