How to invest against bad times?

March 9, 2006 8:05 AM

I have recently had a windfall and have come into some money. I'd like to invest this in an ethical and profitable fashion without assuming a huge amount of risk. Unfortunately, I am of the opinion that there's going to be some sort of economic collapse fairly soon. What should I do?

I feel bad posting this when I know many people here are suffering financially. On the other hand, you're smart and many of you will probably get pleasure from free-associating on this problem.

It's not so much in the scale of things, but it's a couple of hundred thousand dollars and it's probably more than I'll ever see again. I once got a rather smaller windfall and frittered most of it away.

I don't have the time to actively manage this investment on a day-to-day basis, and nor do I wish to do so, thus real estate is probably out of the question -- there are also ethical questions, and practical questions regarding the long-term viability of stratospheric real-estate prices in a post-crash economy.

I already have about a third of it in a bank in Canada (that's where it started, I didn't move it there) and am prepared to deal with the tax implications of this so ideas involving Canadian investments are solicited.

And above all, I won't invest in anything unethically questionable. I'd rather give the money away.

Regarding the perhaps-impending collapse, I see the immediate issues as the massive looting of the US Treasury by the Government, on top of huge financial burdens like Iraq and New Orleans, and an over-inflated housing market; and medium-term, I see serious, permanent energy shortages that will damage the economy for many years to come.

posted by anonymous to work & money (28 comments total)

Oh, gosh, get a financial manager! Congratulations, and thanks for investing this money in a socially responsible way. Your manager will help you with all of these concerns. You should have a broad basket of investments, some for growth, some for stability, and some for pure social good. Your manager will take the time to discuss this with you, give you information, and teach you how to inform yourself.

How about, too, giving some of the money away? This will offset any unforseen unethicality in your investments. Give money to philanthropic organizations, or start one of your own and give mini-grants to activists. Email's in my profile if you'd like more information about collectively or individually going the philanthropic route. Friends of mine who do it say it's really fun.
posted by By The Grace of God at 8:28 AM on March 9, 2006

Basically, the smartest investment strategy is to invest and leave it alone. Even if we do enter a great depression style collapse, things will not become a Mad Max scenario. Even if they do, is money going to help you or is a gym membership and shooting lessons going to be more useful now?

Find a socially responsible, balanced mutual fund that doesn't trade often. Put your money in it. Leave it there.

The Amana Funds based and managed on Islamic laws against usury and haram have shown great promise, particularly because the "managed funds" are rarely managed as speculative buying and selling is forbidden as gambling.
posted by Pollomacho at 8:30 AM on March 9, 2006

Staggered GICs, e.g. 1 year certificates, with a new certificate issued each month, so that after 12 months you have a certificate up for renewal each month which can be reinvested in whatever way you see fit.
posted by furtive at 8:31 AM on March 9, 2006

Sticking it in a non-US bank seems like a good idea, if you're worried about the US economy.

If you're interested in a long-term investment, like a trust or a scholarship fund, I'd talk with a financial planner. But if you want to simply give it away, there are plenty of wonderful charities (see the BBB's reports on various non-profits) that would be glad to take the money off your hands.

[shameless begging]
For instance, I work for a wonderful, long-running community center in a low-income neighborhood of Baltimore, MD that could desperately use some money to fund its struggling community garden!
[/shameless begging]
posted by schroedinger at 8:32 AM on March 9, 2006

I know this sounds trite, but you want to talk to a good personal financial advisor.

Being sure to handle this efficiently, from a tax perspective, is the year one priority. After that, having an interested advisor will really pay off. A few hundred thousand dollars won't be a big sum of money to them, but it's enough that you won't be low man on the totem pole.
posted by I Love Tacos at 8:33 AM on March 9, 2006

I had a really long message written out, but not to be patronizing -- I don't think you know much about economics, investing and finance. It's obviously an incredibly complex topic.

Here's my advice, tell your financial advisor/investor whomever, that you want to invest ethically. They'll pull the Haliburtons and the Wal-Marts out and give you the most ethical companies possible. It's impossible to find a company that coincides with your ethics completely, the best thing to do is influence that company through your shareholder status. I would recommend investing in a Haliburton and pulling a Michael Moore, that go to shareholder meetings and demand change. I think that's much more effective than just not touching those companies. I have a feeling that multi-billion dollar companies will not care about your 2-3 million, not to mention investing your entire egg in one company is incredibly high risk.

Don't base your decisions on the sky-is-falling pundits on TV. Certain sectors of the econcomy are hurt by change, but if you think the whole thing will collapse in an apocolypse Mad Max type event, that's crazy.
posted by geoff. at 8:33 AM on March 9, 2006

I'm ethical and a much safer bet than the stock market ;-)

Not much of a financial wizz myself but I've been looking at the co-operative bank. Might be worth a look.
posted by twistedonion at 8:44 AM on March 9, 2006

Find a fee-only financial planner in your area.
posted by junkbox at 8:55 AM on March 9, 2006

This is probably obvious, but just in case, I'd recommend first and foremost paying off any outstanding debt. Even if it's relatively low interest (like a home or car loan), that's a guaranteed interest to pay versus a non-guaranteed return on your investments. Of course, IANAFinancial Planner and others may disagree with me, I just always try to avoid debt whenever possible.

As for investing against bad times, I'd echo heavily the others who have said find a financial planner, but I'll also throw out a suggestions I haven't seen which is buying some silver or gold. Traditionally, I think the precious metals tend to behave the opposite of the stock market. When there's a lot of uncertainty, people want things that they are confident will retain value, and gold and silver have obviously been valuable for thousands of years.

The only hesitation I have in suggesting gold or silver is that I think their prices have been pretty high the last few years, and I wouldn't be too surprised to see them drop off a little, but they still wouldn't be a bad addition to a well balanced portfolio.
posted by chndrcks at 9:10 AM on March 9, 2006

I too am very concerned about the current US economic state. While everyone is dismissing MadMax type scenarios, explosive inflation (very possible) will eat up whatever you have saved.

Real estate can be a great ethical investment - not buildings and houses, but rather woods and fields. Buy hundreds of acres of swamp/wet-lands (lots of it around Wisconsin/Mich/Minn) and let it lie fallow. Let Mother Nature reclaim as much as possible. Plant trees and pick trash. Schedule money to pay yearly taxes, so you don't have to concern yourself with that management.

Note that with the depletion of natural predators, you may want to think about allowing hunting on your land (for a fee). Use the fee to pay for the taxes on the land and consider the animals sacrifice as a gift to their offspring.

The one thing about real estate: they're not making more of it. :)
posted by unixrat at 9:28 AM on March 9, 2006

unixrat - According to this NY Times article, if every American were given a quarter acre of land, the total land given would be less than half the size of Texas. They may not be making more land, but they hardly need to.
posted by malp at 9:36 AM on March 9, 2006

If in a Canadian context, which you hinted at: whatever financial instruments you get, max out your RRSP. Oh yeah, and clear any and all debts (including mortgage and car payments).

Other than that, I'm sure a financial advisor will tell you to invest broadly to minimize risk -- i.e., some in fixed instruments (GICs and bonds), some in money market funds, some in equity mutual funds (ethical funds are available; about half my own RRSP is invested in one), that sort of thing.

If nothing else, or while you're figuring all this out, have a high-yield savings account that pays more than a point or two in interest.
posted by mcwetboy at 9:42 AM on March 9, 2006

The most important word that I haven't seen in this thread so far: diversify!
posted by wackybrit at 9:46 AM on March 9, 2006

Is it even possible to diversify if you think the whole economy is going to be coming crashing down? Is it possible to invest at all?

I guess you could buy gold. That's what people who believe this kind of thing tend to buy.
posted by smackfu at 9:51 AM on March 9, 2006

This question has been asked before.
posted by malp at 10:20 AM on March 9, 2006

You may not be able to avoid the crash, but I doubt you'd need to. You'd just need to crash less hard than everyone else. If all our investments become worthless, you just need the least worthless investment to be the richest man in the world, right?
posted by nebulawindphone at 10:20 AM on March 9, 2006

Anon, you are asking three different questions. Each one has its own answer:

Q1: How should I invest? I don't know much about it.
A1: Read a lot and/or talk to a financial advisor

Q2: I want to invest ethically. How can I do that?
A2: Read up on Socially Responsible Investing and find an investment advisor who specializes in SRI. You could start with the Social Investment Forum web site, and the Social Investing material from Co-op America. These sites will provide lots of info, directories of SRI professionals, etc.

Q3: How should I invest given the fact that our economy is about to go to hell in a handbasket?
A3: This will be much tougher, and most financial advisors you could afford will not have pat answers to this question. They are trained to "trust that the market will go up in the long term," rather than being trained to watch out for critical market events like crashes. There are so many possible scenarios that at best they will be able to talk to you about some of your options, rather than provide a clear path.

That general advice notwithstanding, here's one possible course:

Divide your money three ways.

• Put 1/3 into a low-cost world equities mutual fund. (World means it invests in US as well as non-US companies). Over the long term, you want some money in equities. Even if things get bad for a while, they should get better again over the next 10 to 20 years. Make this some sort of index fund, rather than something actively managed.
  
• Put 1/3 into a high-yield money market account. Have you noticed the Fed has been raising interest rates? Money market accounts are now paying over 4%, with very little risk. That's pretty good money.
• Put 1/3 into a money market account denominated in non-US currencies. Everbank has a bunch of these. It's costs a lot to get in and out of them (0.75% each way, I believe). But if you're afraid of the dollar collapsing, this will put a bunch of your money in other currencies, and also pay you interest. Only do this if you're really confident of the direction that currencies will move! Also, don't do this with money that you might need to access in the next few years.

posted by alms at 10:51 AM on March 9, 2006

The first question a good financial adviser would ask, and one no one above seems to have addressed, is: "what are your obligations?"

Do you have a spouse or children to support? Do you expect to have them someday? Do you have aged parents who need or are likely to need support? (If you think a collapse is coming, your parents' pension or other retirement arrangements might disappear.) The answers to these questions should influence your investment strategy.
posted by MattD at 11:36 AM on March 9, 2006

The most ethical and responsible investment is the one that will give you the best return. There is nothing ethical in being stupid or self-destructive. The effort of individuals to maximize investment returns makes the whole system (which is not going to collapse) run smoothly and efficiently for the good of rich and poor alike. How do you think your little windfall got built up in the first place?
posted by Faze at 12:27 PM on March 9, 2006

The Calvert Group in Washington DC practices socially responsible investing. I'm not totally sure what that is, but sounds like it might be up your alley. Here's the link: http://www.calvert.com/index.html. The CEO and President spoke at an event I was at one time and from the looks of the site it might be a good place to manage your assets.
posted by ml98tu at 1:08 PM on March 9, 2006

At least one sensible response to all of your concerns is to invest in the most efficient personal technology for yourself. Presuming you own a home (and if you don't, buy a home would be the first thing I'd do) there are many high initial cost technologies that pay off in the long run, from alternative power systems to simple things like insulation. Get an energy audit, do everything you can to make your home super-efficient. Buy the most reliable and fuel-efficient vehicle you can afford. These are investments you can't really lose. Saving energy is inherently ethical, and if you're right about energy price spikes (you're practically guaranteed to be correct to some degree, though I think you're being somewhat alarmist) efficiency pays off double. There is no purely financial investment that can protect you from catastrophic economic collapse including precious metals.
posted by nanojath at 1:39 PM on March 9, 2006

I know it's not an investment, per se, but I would recommend a contribution to your local food bank, if you're seeking a way to unequivocally do good with the money.
posted by WCityMike at 1:49 PM on March 9, 2006

The most ethical and responsible investment is the one that will give you the best return.

You're confusing efficient with ethical.
posted by odinsdream at 2:07 PM on March 9, 2006

I would keep it in cash right now -- I have over 35 years experiance in investing with an economics and business background and keep current -- I retired at 49 -- how many of the above can say that -- good luck...
posted by orlin at 2:21 PM on March 9, 2006

Also -- before doing anything, tithe 10 - 15% to charity ASAP.
posted by orlin at 2:23 PM on March 9, 2006

4%? The cash rate in New Zealand is 7.25%. A 12 month term investment (anything over NZ$50k) with one of the biggest, safest banks in the country, earns 7.10%.

Just sayin'.
posted by The Monkey at 4:48 PM on March 9, 2006

(But, yeah, as alms says, be sure you look at what the currencies are likely to do.)
posted by The Monkey at 4:49 PM on March 9, 2006

The most ethical and responsible investment is the one that will give you the best return.

Oh, really?
posted by lupus_yonderboy at 6:47 PM on March 9, 2006