• I don’t have interest/passion in tracking individual stocks. I’d rather spend time doing other things I enjoy doing.
• I want to have a good night of sleep every night. I don’t want to spend time worrying about my investment.
• In my opinion, stock trading doesn’t create any real value. I want to become wealthy by creating real values. I believe that one major cause of our current financial mess is that we’ve too many bankers, and too few builders. I like to succeed the old fashion way by working hard, working smart, helping others, and creating values.
• I believe stock market is NOT efficient. Some people have information advantage over others.
• I understand that it’s very hard to beat the market if I have to pay extra fees to personal financial advisors and fund managements.
• I agree with Mark Cuban — Stock Market is for Suckers.
• I respect and admire John Bogle. I believe in his philosophy of index investing. Following his advice in The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits), The Bogleheads’ Guide to Investing, and Enough: True Measures of Money, Business, and Life, I earned positive returns for my 401K in 2008 while most people I know lost 40% or more in their 401K accounts.

I was wrong.

Ramit wrote in such an engaging style that I kept reading his blog although I was skeptical. Interesting enough, Ramit didn’t have any ads on his blog for the first few years. No Google Ad Sense, no display ads. Post after post, he kept publishing insightful and engaging articles on personal finance. He focused on contributing, instead of getting things back.

Within a very short period of time, Ramit’s blog has grown into one of the most popular personal blogs on the internet. Ramit has also co-founded a venture-back start-up while continuing building his personal finance brand.

This past Monday, Ramit’s new book I Will Teach You To Be Richwas released. It was the #1 selling book on Amazon.com on Monday! It ranked #20 now (5:45PM, Wed, March 25, 2009).

Wow! That’s impressive!

Ramit made a few chapters available for bloggers to review. I finished reading the sample chapters in one setting. It’s excellent. There are a lot of personal finance books out there and it’s very difficult for a new author to break out. But, Ramit’s book is different.

It kicks you, motivates you, and inspires you to take actions NOW to get your finance in order. Ramit writes in such an engaging and convincing style that you’ll be inspired to take actions immediately.

Its content is highly relevant that reflects the challenges we’re all facing in the current financial crisis.

It focuses on sound, essential personal finance principles. No gimmick. Just solid, insightful, and battle tested advice.

I highly recommend I Will Teach You To Be Rich to anyone who wants to be rich.

All banks in the US are in deep trouble. Citi Bank’s stock is below $1 now. JP Morgan Chase and BOA are in pretty bad shape – their balance sheets are in much worse shape that what their CEOs have been saying. Well Fargo is not much better.

Bank saving account rates are pretty low.

Given the turbulence in the stock market, it’s time to wait on the sideline. Until we can see clear indicator of a recovery, it’s very risky to get back into the market now.

We’re going through a deflationary period. Massive inflation probably will follow suit.

Foreign banks are not safer than the US banks. Even the Swiss Banks are in deep trouble.

Where should we put our money?

Over lunch today, a very financially savvy friend said: “Cash, Gold, and Gun.” This is not a joke – these might very well be the 3 remaining instruments for safely park your money until we see clearly indication of market recovery.

Where are you keeping your money?

You could argue that some of them got lucky. However, all of the people I talked to share a few things in common and we could all learn from them:

1. they’re all very frugal although they have made handsome profits. 
2. they all have a strong background in economics and finance. Most of them studied economics in college, and have keen interests in the market and economics. 
3. they’re critical thinkers. They don’t trust what they heard from the mainstream media. They form their own opinions.
4. they’re very critical of the bailout package and how the US Treasury has been spending the bailout money.
5. they’re big fans of Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets and The Black Swan: The Impact of the Highly Improbable.
6. they’re well-read, and well informed. When I probed further and asked them what they read to keep up with the rapidly changing economy and market, I found something quite interesting. They all seems to read the same finance blogs! They told me that blogs have been their best source of information and analysis. Here are a list of blogs they’re reading:
   • RGE — Nouriel Roubini’s Global EconoMonitor Blog
   • Calculated Risk
   • The Market Ticker
   • Clusterstock
   • Andy Kessler

What’s next?

1. Do you read any of these blogs? If not, check them out.
2. Do you know any other finance/business blogs that you would like to recommend? Leave a comment.
3. Do you want to better understand current financial crisis and learn the lessons from Great Depression? Check out Panic: The Story of Modern Financial Insanity, Edited by Michael Lewis and  The Return of Depression Economics and the Crisis of 2008 by Paul Krugman, the 2008 winner of Nobel prize in Economics.

In the past, I have always maxed out 401K deduction to take advantage of the tax saving benefit. I’ve also put some money into Flexible Spending Account since we have a young family with regular medical expenses.

Health Saving Account (HSA) is new to me this year. The premium for our PPO health plan will increase by 200% next year (i.e. the company is cutting employee health care significantly in order to save money), so I really have no choice but sign up for the HSA medical plan. I know many employers are moving to HSA plans. In case you’re in the same boat and try to figure out how exactly HSA works and how HSA is different from Flexible Spending Account (FSA), I’d recommend the following two excellent articles:

What’s the difference: Health Saving Account vs. Flexible Spending Account:
How Medical Savings Account and Health Saving Account work

Here is what I’ve decided:

• I still plan to max out our 401K deduction in 2009. 
• I will also max out HSA deduction in 2009 as well because 1) with two young kids and some dental work I planned for next year, we’ll have a sizable medical bill 2) tax benefits 3) I can always use my HSA money in the future if I have money left unspent in my HSA account in 2009. If I change jobs in the future or start my own company, I might no even have a HSA account. I want to take advantage of this opportunity to get some tax benefit.
• But, I’ll only deduct a small amount in the first half of 2009. One huge benefit of 401K and HSA deduction is that you can change the amount of deduction at any time during your benefit year. Given the current economic situation, there is a lot of uncertainties. I want to conserve as much cash as possible, and wait and see how the economy goes in first half of 2009. If things become much worse (e.g. I lose my job), I could choose not to put any money into 401K or HSA at all. By having small deductions upfront, I’ll give myself more flexibilities down the road.

The next question is how to invest the 401K money. I took out all of my 401K money from stock funds and put them into money market funds in Summer, 2008. I was lucky that my 401K portfolio didn’t have a big drop in 2008. I still think that the stock market has not reached the bottom yet. I’ll continue to hold most of my 401K money in money market funds for the foreseeable future.

Disclaimer: I’m not a financial professional. So, if you’re looking for advice on how to invest your 401K money, consult a financial professionals.

Here is what I’ve learned:

You cannot trust media, gurus, financial advisors, real estate agents, banks, mortgage brokers, etc. There is way too much noise out there in the market. And a lot of people are trying to make money out of you. To take care of your hard earned money, you must be financial literate, and learn to think critically about news, financial products, economics, etc.

It’s not enough to be well-informed. You need to think critically about information and act accordingly.

Too bad, frequently our education system and media "give us a fish, but don’t teach us how to fish".

I recently read a very interesting book. Although the book is about worldly wisdom, I think it’s one of the greatest investment books of our time. It teaches you how to think critically and independently.

The book is recommended by Warren Buffet at Berkshire shareholder’s annual meeting.

It’s written by one of the greatest investors of our time — Warren Buffet’s long-time business partner.

The book is Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, Expanded Third Edition.

I’m wondering what will happen next. Given the direction our economy is going, Fed probably needs to keep cutting its rate. But, it’s already 1%. How much more can they cut?

It’s actually conceivable that the Fed will cut the rate to 0% eventually — after all, our current Fed Chairman Ben Bernanke is a scholar of great depression, and in the past he had criticized the Japanese government for not aggressively cut rates to stimulate the Japanese economy during prolonged recession.

Then, what will happen after the rate goes to 0%? I don’t really want to go there, but it seems to me the government will need to print more money, which will result in inflation and massive devaluation of US currency.

How will this affect our 401K investment? I don’t have a definitive answer. But, from my perspective, I’m parking my 401K money in Money Market for the timing being until there is more clarify about what the next administration plans to do to "fix" our economy. I still believe the biggest risk now is regulatory uncertainty. I’ll play conservative until I get clear indication of our next government’s plan.

Disclaimer: This is a blog post only. I’m not here to offer any financial advice. I’m simply sharing my thoughts on the current financial market and how it might affect my own 401K investment strategy. You’re free to read my thoughts, but use your own judgement. Use the information from this blog at your own risk.