Risk and Money Management

Millions of Americans believed purchasing a home was the safest risk for their money, only to have their investment shrink and lose them money, in many cases, substantially so. We have seen banks fail, and were it not for the FDIC or bailouts, 10's of millions of Americans would have lost all or substantial portions of their investments and savings.

Ultimately, even relying on the FDIC (Federal Deposit Insurance Corporation, insuring bank and saving's depositors up to $250,000, is not without risk going forward. With America's national debt growing by leaps and bounds, more than doubling since 2000, the risk of government default on its debt obligations grows large as time passes.

The days of parking one's money somewhere in an investment and forgetting about it until retirement, are over. And they are unlikely to return in our life times. A global economic depression of unprecedented proportions was narrowly averted last Fall. It is an indication of the new era of globalization and the global risks of money management and investments.

It would however, be unwise to park one's money under the mattress. Inflation looms as the next big crisis after the coming commercial real estate one has come and gone. During inflation, the purchasing power of a dollar diminishes by percentages each year. That 10 dollar bill under the mattress may only buy $6 dollars worth of goods 10 years from now.

The wise investor today must be vigilant to the changing circumstances of investment options. Individual's lacking such vigilance either willfully or due to lack of education on the topic, would be wise to secure the services of a cost effective but competent investment adviser. Dare I say it, one should do one's level best to avoid the Bernie Madoff's in the investment world. The old maxim still holds true, if it sounds to good to be true, it very likely is.

There simply is no substitute for education on the topic however, as a hedge against the risks of investing. It appears the recession in America has bottomed out, and modest fits and starts of growth in our economy lie on the near term horizon (next 3 to 5 years). This would indicate that investments in stocks of major corporations whose earnings and sales revenues will be enhanced by a recovering economy, would be a wise option.

But, remember that the global economy is a very complex system with an enormous number of very large players, any few of which as nations or international corporations could spell trouble for the whole world economy. So, it is wise to remain vigilant, or higher a trusted competent person to remain vigilant for you.

This writer is not involved in the investing industry nor licensed as an investment counselor. But, one does not have to be an expert in anything to be wise about managing their 401K or investments. Only knowledgeable of current economic and investment risks and ways of managing those risks in general. Anyone with a high school education can become wise about the management of their own money. They need only know what they know and what they don't, and be willing to find a trusted person to help them with they don't know. Managing money is all about managing risk.

Use your browser's search bar to research your preferred investment vehicle, with the word "beginner" attached. Example: '401K beginner'. This is an excellent place to begin to become a wise manager of your money. Select those internet articles, magazine articles, or books which appear to match your understanding and reading level, and grow from there. Reaching the mountain top always begins with a first step at the bottom (unless you own a helicopter :-)

Expertise may require a Ph.D. Wisdom does not.