We thought things were bad when we saw Bear Stearns and IndyMac go under, but this past week has seen more financial casualties than both of those giants combined.  Thankfully, Bank of America is buying Merrill Lynch, but Barclays is still sitting on whether to buy part of Lehman Brothers.  The Fed has begun to bailout AIG if they accept the terms of that loan (interest at a staggering 11.3% - sorta like some of our credit cards!).  And yesterday there was talk that Washington Mutual might be the next bank to stumble.

I think this shows that the environment we were in back in March is definitely not over.  Clearly, Bear Stearns and IndyMac were not indicating bottoms in the market.  It makes sense to view this past week in the same way.  There is good reason to think that it’s also not a bottom.  So what should you do with your investments in the meantime?  If you own Lehman funds or ETF’s, I’d like to hear from you.  I’m assuming these are all being unwound somehow and it would be good to know more about how they do it.  Have you ETFs collapsed too?

Here are some of my quick thoughts and suggestions on what to do now:

(1) Especially if you’re an American, use the recent small rally in the greenback to buy other currencies.  The Canadian and Australian dollars, the British pound, the Brazilian real, some Yen and some Renminbi would all be good choices.  As for the amounts to allocate, that’s up to you.  You don’t know where the next currency strength is going to come from, but despite McCain’s comments to the contrary, the US economy’s fundamentals are most noticeably NOT sound for all the reasons that readers of many personal finance blogs already know about.  If you’re Canadian, don’t buy American dollars unless you know you’ll be travelling there.  Buy Australian and the other currencies above.

(2) Buy gold now that it’s cheap again.  Speculation has it that Lehman and AIG are unloading their commodities funds and this is part of the reason for the recent drop in gold.  Usually, gold will shoot up in a time like this.  Take advantage of this window (remember when gold just recently cost $200 more per ounce?  Ouch.).  Either buy physical gold if your supplier isn’t backed up with orders, or open an account with a company like GoldMoney that specializes in digital gold storage.  I’d stay away from gold and metals mutual funds.

(3) You might want to sell off some of your pure growth stocks if they’re still trading at decent highs. Take your money off the table while you can.  If a stock isn’t paying you any dividend and is just sitting in your account as a “paper” gain, I’d clean that up while you can still take a bit of a gain.  It’s not clear what financial institution will be the next to fall and how far its relationships will reach throughout the economy.  AIG is an apt case because it insures so many other large companies.

(4) Stick with consumer staples stocks that pay dividends.  Names like Johnson and Johnson have continued to do well up until this point, weathering out all the turmoil so far.  People still need to buy band-aids and hygenic products.  Similarly, Pepsi, Kellogg’s and Coca-cola sell junk food items (yeah, that’s what I consider many of those cereals!) that people will continue to buy.  It’s not necessarily unethical to buy these stocks with this knowledge.  After all, I bet you also drink some Coke from time to time and buy chips and probably Dasani bottled water.  Coke even makes those Odwalla healthy juices.  These companies are probably much safer bets than any American financial company.  On the other hand, Canadian financials, for the most part, are relatively safe bets if you stick with the more conservative banks (Nova Scotia, TD, National).  I’d stay away from CIBC, BMO, Manulife and SunLife currently.  It’s not clear yet how much Manulife is involved in the mess and how much it will need to write off.  SunLife is caught up in it too.  I don’t know enough about European financials to judge them, but Barclays sounds like it must be in a good position if it can buy up part of Lehman.

(5) Tighten up your budget and pay off at least one of your credit cards.  It’s easy to “yo-yo” on credit cards.  You pay it off, then load it up again, pay it off again, etc.  In order to break the yo-yo diet, you need to restrict your spending throughout and from now on.  Credit cards have some important and essential uses (such as for online purchases), but the way to wean yourself off using them in a routine manner is threefold: (a) cut your spending on non-essentials and impulse buys, (b) establish an “unexpected needs” fund in a high-interest savings account, and (c) establish a bevy of dividend-paying stocks that can flow about $100/month to you (or whatever number you decide would be a significant help in meeting these unexpected “emergencies”.  Note that here we’re not talking about your REAL emergency fund (for deaths, accidents, etc.).  You just need to take care of the slush fund of impulse and unnecessary purchases.  So I suggest paying off one card completely and keeping that aside as your “emergency fund” until you have a real emergency fund in place.  You’ll be less inclined to spend it, too, when you see how much money it can make for you.

(6) If you’re very close to paying off your mortgage and you know you want to stay in your house, I’d pay that off as soon as possible.  It’s very powerful to own your own house outright.  I don’t think now is the time to be using home equity for buying second homes, as some have continued to advocate throughout the last year.  If you need to, sell your second vehicle in order to cut expenses and bring in the extra cash.  If you sell off your growth stocks, you could put that money towards paying off your mortgage once and for all.

(7) Stay up to date on the financial news.  Don’t be caught off guard.  Watch the movements in the US dollar in particular.  I was away for a brief period at the beginning of this month and didn’t have quick access to any of my usual news sources.  I was shocked to hear about Lehman on my return just a week later.  It’s amazing how much can change in just a few days.

Your own situation will be different than everyone else’s, of course, but in general you want to find ways to increase your own security right now and not take on any risks that don’t have some immediate payback (such as income in the form of interest or dividends, or rental income from tenants).  Tighten up your own financial situation so that your own finances don’t look like those of the US Government.  Pay off people that you owe.  Pay for those purchases you made on credit.

What are your own plans for making it through whatever this financial storm is?  Do you think this is the bottom yet, or have these new developments surprised you a bit as they did me?  Leave your thoughts below or comment on it in a post of your own.

Andy over at $aving to Invest tagged me with the Single Step Personal Finance Challenge created by Mrs. Micah. The challenge is to find “one step you can take to make your financial system better or more organized.” This is my first tag!:) It’s like finally getting a Valentine’s Day card when you thought no one had thought of you:).

Well, thinking in terms of what is most efficient a move, there are two close contenders for this single step. You’d think one would be just pay off my student loan debt now so that once I am on a salary after finishing graduate school, I won’t be needing to pay over $550/month in loan interest. The only problem with paying off debt, for me, is that it easily comes back. It’s like trying to kill a zombie. I’m almost always going to need some debt. It’s the lubricant or glucosamine of my financial system, helping me move my financial joints when I need some flexibility. And the reward I feel from paying off debt too soon is very ephemeral. I feel like I’ve just “tricked” myself. It’s a mirage. Debt is intangible, disappearing and reappearing like images in clouds.

On the other hand, building income and especially boosting cashflow is extremely tangible to me and feels like a real gain. I feel I’ve really accomplished something when I’ve been able to increase my cashflow. So here I agree with another of Andy’s posts about wanting to increase his monthly cashflow to $300/month from passive income. If you have enough monthly income to live and save money off of, you’re financially free in my books.

So I’d have to say that enrolling in DRIPS (dividend reinvestment plans) is the best single step anyone can take to improve their finances, or what I call their “moneyenergy.”

Four reasons why:

• no fees or commissions
• automatic dividend/distribution reinvestment
• often get discounts (free money!)
• future source of cashflow (if you keep them reinvested until then)

There are other great reasons too, but these are some big ones. If you’ve read my other posts on DRIPs you’ll know what else I have to say about them. I currently own about 15 DRIPs. This is probably a bit too many for where I’m at right now, but that’s ok. I like knowing that I’ve got them set up and ready to go.

If you’re broke, have a tiny income (like if you’re like most students), or a sporadic income, or you have too many debts to pay off all at once, I think that investing in stocks through DRIPs is truly the most efficient way to develop future streams of cashflow. No fees will hold your money back and you don’t need $250 to begin.

I suppose I need to pass along this little tag now, and I think I’ll pass it over to… Sean at Financial Ramblings (if you haven’t done this one, yet, Sean!), The Almost Millionaire and Free From Broke. What do you guys think? What’s your “single most important step?” “The key” to your financial freedom, so to speak, perhaps?

Can’t remember now how I ended up thinking about this, it was in a comment I made on someone’s blog - or it might have been while reading about the audaciously ambitious adventure of Jason Coulls over at MillionaireWithAdSense (a fellow Canadian; [oops; he's actually British] there’s something about Canadians and crazy online money-making adventures, maybe? Remember Kyle MacDonald and “One Red Paperclip“? :)).

The Oldest Personal Finance Blog

This should get some of you scratching your head. Think you know which it is? The Simple Dollar? Get Rich Slowly? Blueprint for Financial Prosperity? And how old do you think the blog is? Two years? Three years? Well, here’s what I found. Do contact me if you learn/know differently: comment on it down below. A very interesting fact is that the longer you’re in the blog business does not necessarily translate into how many subscribers you have. More recent blogs can easily have more subscribers than the oldest ones.

Consumerism Commentary: one of the biggest PF blogs out there, this was begun quite early. July 2003! And it’s still on its own site. 5466 subscribers.
Blueprint for Financial Prosperity: this site was originally Ease of Travel; begun in November, 2003. On January 31, 2005, it moved over to where it is now at Bargaineering.com. It’s interesting because although it has been around longer (much longer, in blog terms) than Get Rich Slowly, you can see how fewer subscribers it has.
Free Money Finance: since April 2005. Subscribers: ?
Get Rich Slowly: on its own website since April 9, 2006 (looks like previous posts may have been deleted. J.D., when did you start your blog?). ***** Subscribers: 57,066.*****
Lazy Man and Money: begun May 2006. Currently has 2534 subscribers.
The Digerati Life: begun two years ago in July 2006, but doesn’t have the same subscriber count as The Simple Dollar and other giants. 3123 subscribers.
Generation X Finance: since at least October 2006. Has 2588 subscribers.
The Simple Dollar: on its own website since October 30, 2006 (I’m not sure about records before that). Has 33,275 subscribers.

Have I missed your blog? Know of an older one, or a personal finance blog with more subscribers?
I should also emphasize that just because a blog has more subscribers or has or has not been around as long as another blog - by any of this I don’t mean to judge the quality of the blog itself.

How Long Does a (PF) Blog Live?

What about blogs that have hit the dirt? If you peruse through old links, you’ll see a few that lost their steam or just grew into different projects. From this, can we infer that blogs have a certain lifespan? 4 years? 5 years? After all, it does take a lot of work to keep one up. I can’t tell you how many dead blogs I’ve come across - many of them, of course, admitted that they were not that interested in blogging anymore anyway, or something to that effect. For example, Grad Money Matters took a break for a few months before doing a couple of guest posts recently. She has 509 subscribers. Other blogs like Dividends Matter don’t update very frequently but still seem to rank high - is it because of the lingering effect of the traffic they once brought in? I’d like to hear your stories of other blogs you’ve noticed come and go - that is, blogs that once were really happening. Of course there are hundreds of blogs that get started but nothing happens to them at all.

It would be interesting to know if a similar fractal metric applies to the lifespans of blogs as it does to the lifespans of other new business start-ups. They say 5 years is a critical mark in small business. What about blogging? Is it 5 months? One other blogger said it was five months before she started bringing in income from her site. Of course, the income was not her purpose in the first place.

It will be interesting indeed to see how the future of finance blogs develops. You know, there are people doing their PhDs on this as we speak…