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Home » Opinion » Book review
Golden rules for financial survival
By Wu Jiayin |
August 22, 2009, Saturday
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Print Edition
Print Edition
MARTIN D. Weiss, author of "The Ultimate Depression Survival Guide," is not the first nor the last one who predicts that another Great Depression is around the corner.
Author Harry S. Dent Jr, for example, also foresees a major depression following the "Great Crash of 2008-2010" in his book "The Great Depression Ahead."
One big difference between the two is that while Dent makes his prediction mainly by analyzing demographic and technology cycles, Weiss bases his argument more on his profound expertise on the United States economy.
Weiss identifies some disturbing signs that portend dark days ahead, which largely proves his warning: "Never before in your lifetime has your money, your home, your retirement and your entire financial future been in greater danger!"
For instance, one of every ten US home mortgage holders is delinquent or in foreclosure, and 40 percent have less equity in their homes than the debt remaining in their mortgages. Besides, many famous US companies or even banks have gone bankrupt.
Moreover, the US government is adopting an insensible policy by using huge amounts of money bailing out the troubled companies and banks, which fails to help quicken the recovery and only leads to more public debts.
Yet the main purpose of the book is not merely to paint a dire picture of the future.
Weiss aims to guide readers to financially survive or even prosper in the worst of times.
Many of the savings and investment tips he provides in the book are useful and highly practicable. But he appears to be too optimistic.
To survive in a bear market, ensuring the safety of one's capital is no doubt of primary importance.
It is generally agreed that in hard times, cash is the king.
So Weiss suggests that during the economic recession, one should pay off all one's debts as quickly as possible and save as much cash as possible.
In a declining real state market, one may also sell one's home or other real estate as long as he or she does not live in it.
As banks in the US also have the risk of going bankrupt, Weiss advises that one never place more than the US$250,000 guaranteed by the Federal Deposit Insurance Corporation in any one bank. Instead, one can buy short-term US Treasury securities.
For people who want more than the safety of their capital, Weiss has some more aggressive investment tips, which are of course accompanied by higher risks.
Weiss suggests investors consider several investment tools, such as an exchange-traded fund (which is said to allow one to buy a broad portfolio of investments), currencies, stocks, etc.
One problem is that no one knows when the economy has truly hit the bottom.
But Weiss is not far wrong in saying that "especially in a depression, serious investors must learn how to invest in both up and down markets."
And his five golden rules following his tips largely compensate for his over-optimism.
The rules are: Keep your priorities straight (savings first, then capital preservation, and then speculative profits); controlling risk is just as important as maximizing gains; if you speculate, use only money you can afford to lose; keep your emotions in check; and reduce your commission costs to the bone.
Author Harry S. Dent Jr, for example, also foresees a major depression following the "Great Crash of 2008-2010" in his book "The Great Depression Ahead."
One big difference between the two is that while Dent makes his prediction mainly by analyzing demographic and technology cycles, Weiss bases his argument more on his profound expertise on the United States economy.
Weiss identifies some disturbing signs that portend dark days ahead, which largely proves his warning: "Never before in your lifetime has your money, your home, your retirement and your entire financial future been in greater danger!"
For instance, one of every ten US home mortgage holders is delinquent or in foreclosure, and 40 percent have less equity in their homes than the debt remaining in their mortgages. Besides, many famous US companies or even banks have gone bankrupt.
Moreover, the US government is adopting an insensible policy by using huge amounts of money bailing out the troubled companies and banks, which fails to help quicken the recovery and only leads to more public debts.
Yet the main purpose of the book is not merely to paint a dire picture of the future.
Weiss aims to guide readers to financially survive or even prosper in the worst of times.
Many of the savings and investment tips he provides in the book are useful and highly practicable. But he appears to be too optimistic.
To survive in a bear market, ensuring the safety of one's capital is no doubt of primary importance.
It is generally agreed that in hard times, cash is the king.
So Weiss suggests that during the economic recession, one should pay off all one's debts as quickly as possible and save as much cash as possible.
In a declining real state market, one may also sell one's home or other real estate as long as he or she does not live in it.
As banks in the US also have the risk of going bankrupt, Weiss advises that one never place more than the US$250,000 guaranteed by the Federal Deposit Insurance Corporation in any one bank. Instead, one can buy short-term US Treasury securities.
For people who want more than the safety of their capital, Weiss has some more aggressive investment tips, which are of course accompanied by higher risks.
Weiss suggests investors consider several investment tools, such as an exchange-traded fund (which is said to allow one to buy a broad portfolio of investments), currencies, stocks, etc.
One problem is that no one knows when the economy has truly hit the bottom.
But Weiss is not far wrong in saying that "especially in a depression, serious investors must learn how to invest in both up and down markets."
And his five golden rules following his tips largely compensate for his over-optimism.
The rules are: Keep your priorities straight (savings first, then capital preservation, and then speculative profits); controlling risk is just as important as maximizing gains; if you speculate, use only money you can afford to lose; keep your emotions in check; and reduce your commission costs to the bone.
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