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My 3-minute video response: What you can do about today’s economy?

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Yesterday a bunch of you left comments and sent me emails about what’s going on in the economy. Here’s a quick video I did to answer some of them. Check it out and see my notes below.

Worst screen capture ever?

0:01 — Intro: We’re going to talk about what’s happening with the economy, asking the right questions, what you can do with your money. PS–It’s my first time doing video for this site, so please cut me some slack!

0:12 — Lots of questions: “What’s happening?” “Who can I blame?” “Why is the government bailing companies out?”

0:45 — Most of the questions are totally irrelevant!.

What do we know?
1:11 — Your money is generally safe: Money in savings accounts is insured up to $100,000 per account, and money in brokerage accounts is insured up to $500,000 (with some nuances). However, this doesn’t mean money in your portfolio is insured against losses in the stock market — if your portfolio is down 20%, it’s really down 20%. That’s why investing is “investing,” not “picking a sure thing and profiting a lot.” SIPC insurance means it’s insured against the brokerage firm going belly-up. Learn more by reading this article.

If you’re looking for a broad-based understanding of what’s going on, The New York Times has been providing excellent coverage, especially this page.

Worry about the things you can control
1:47 — We misjudge risk and worry about stuff in the news — as opposed to the real risk. Let’s say you’re worried about not having enough money. Which is more likely?

1. You’ll run out of money because you lost it all in a tumultuous stock market
2. You’ll run out of money because you didn’t save enough, spent money on stupid stuff (vs. spending consciously), and didn’t properly diversify your assets

OF COURSE it’s the second, but because of the availability heuristic, we tend to overweight what’s easily accessible in our brains (i.e., we’re all worried about what we read in the papers right now).

Remember, we are cognitive misers and can only pay attention to a few things, so take advantage of that. I’d rather focus on the very real risks that have caused millions of people before me to not have enough money to sustain their lifestyle — that is, not saving enough — rather than worry about a macro-economic topic that’s in newspapers. Sure, it’s important, but I can’t control anything at the macro level. At the micro level, I can control everything. (Note: Here’s a good book on judging risk.)

What you should focus on
2:12 — Save more — single-best thing you can do to mitigate risk

(No time stamp.) I forgot to mention this in the video, but please don’t fall prey to the myth of financial expertise: Nobody has The Answer about how bad this will get and how long it will go. Experts have been trying to predict this for years — remember in 2007 when they said it would “probably be fine by the end of the year?” — and they’re still trying. And failingDon’t try to time the market. You’ll fail too. Just pick a regular, consistent investing strategy and optimize for the long term.

2:23 — Tweak your asset allocation

2:42 — Stop asking stupid questions!

2:52 — Best things you can do: Forget about macro-stuff and focus on your own finances. Save more, do a kick-ass job at work and get a raise, or even start a side business.

* * *
Hey, what did you guys think of the video? Should I do more? Let me know if you have any suggestions or questions for other stuff you want me to talk about.

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  1. Great job on the video post, Ramit! I would definitely recommend you doing more, as your conversational style of writing lends more to verbal interaction than it does print [in my opinion, of course 😉 ]

  2. I like the video feature – especially with the expanded ‘liner notes’ as it were. It gets to me twice.

    Thank you for bringing up diversifying your income, taking another job or starting a side business. My husband recently cut back on one job, the smaller paycheck for longer is more valuable than a big paycheck for a shorter period, like if they shut the doors when they can’t cover payroll. Getting a second job in a more stable company kind of hedged our bets, per say, and we’d end up okay if either company tanks.

  3. Ramit,

    I love the new video format. I think it will engage visitors in a new and novel way.


  4. Future1investor Link to this comment

    That was a great first video.
    Don’t stop! We’ll promote them!

  5. […] Here’s my response to the questions. (2 votes, average: 4.5 out of 5)  Loading […]

  6. Ramit, this was great. I totally agree with all of your points. I often wonder why people are babbling about the impact of the recession rather than taking proactive, personal steps like saving, investing, entrepenuership.

    This post was also far better than the last 4 or 5 snipits you’ve put up here which (like one disgruntled reader) left me ready to unsubscribe from this feed.

  7. oooo Ramit, love the video post. Sound financial advice and eyecandy is quite a nice combination. I just started reading your site and have a tinnnyyy nest of money that I’d like to use to start investing. I will definitely read up on asset allocation. Looking forward to more videos.

  8. “Hey, what did you guys think of the video?”

    Watching the video: 3 minutes.
    Reading your summary with all important stuff: 15 seconds.
    Worthy information: same ammount

    My economical thinking very much prefers reading, thank you 🙂

  9. About posting videos: interesting but please keep summarizing them as you did with this one (helps sintetizing and indexing).

  10. Liked the video, thanks. And, embarrassingly, it helped me learn how to pronounce your name correctly. Sorry, I’d been mentally mispronouncing it every time I read it. That’s what happens when you grow up in a predominately German-Swedish part of the Midwest!

    I agree with your comments on saving more money, at which most of us Americans are horrible. However, I don’t think anyone’s questions were dumb. I think if we as consumers are to take better control over our future assets we need to understand what happened *now* so we can watch what is happening in the future, invest wiser, vote for more competent people, etc. What’s that old saying, “He who doesn’t know history is doomed to repeat it?”