I typically enjoy reading Money Magazine. But this month’s edition of “The Crisis: What Do I Do Now” kind of upset me. This month’s editor’s note contradicts itself quite a bit. Eric Schurenberg gives his take on “What Not To Believe About the Crisis”. When he gets to the section about how the economy is “fundamentally strong” is where it gets kind of strange and out of whack. In that section he has this to say:
In times like this, phrases like “fundamentally strong” conjure images of Herbert Hoover, as John McCain now knows. Even so, I happen to agree – in the long run. For now, we have a lot of debt to work out. Housing prices have further to fall, and a recession is probably inevitable. But over the next several years, I believe you will be rewarded for acting calmly today. If you haven’t already, move what you need to cover major expenses for the next TWO YEARS into a bank account or money fund. But don’t bail out now, not when stocks are 30% less risky than they were a year ago. As Harold Evensky, the veteran financial planner, tells his clients, “Now is the worst time in the world not to be invested.” The reason you diversified was to get through times like this. Although it may not feel very pleasant right now, this was part of your plan. Stick to it.
I could not believe that he recommended that you put 2 years worth of expenses into a money fund! Are you kidding me? He then stated that you should stay invested! Now that is what I call contradiction!
What do you think about this recommendation? Am I right to be outraged by it or do I not see it as the rest of you do? Do any of you have TWO YEARS worth of expenses in a money fund?
2 years is too much.. 6 months is sufficient. I would make sure my 401k is maxed out, company stock options maxed out, house is payed off, etc..before saving 2 years worth of expenses.