If you still want to invest in the market during shaky times like now, defensive stocks are the way to go. Defensive stocks are those that are not dependent on the overall economic cycle. Though they are not the stocks of choice to have when the economy is booming, they do outperform cyclical stocks in hard times.

By now we're all well aware of the sub prime lending crisis that spread like a disease, attacking the stock market once and once the market began to recover, more bad news. Today it has gotten worse. Wal-Mart announced that their earnings will be less than expected due to consumers tightening up on their spending. Home Depot made a similar announcement but it is understandable if not expected due to the nature of their business and the current state of the housing market. However, like any consumer knows, you can only curb your spending to a certain degree, at the end of the day, we still need food, gas, electricity, clothing (especially when there are children in the household) and a roof over our head. This is where defensive stocks come into play.

Products such as tobacco, pharmaceuticals, alcohol and utilities are not dependent on the economic cycle. Additionally, food companies that make most of their income from grocery store sales, as well as alcohol and bottled beverages are additional safe options when trying to protect your portfolio from a beaten up market.

Investing In ETFs

ETFs or Exchange Traded Funds and similar to index fund and mutual funds in that they are invested in an index, commodity or basket of assets. The difference is that they trade like a stock on an exchange.

Investing in both individual stocks and mutual funds have their drawbacks. When you buy an individual stock, all of your investment dollars are riding on the company you invest in. One factor of successful portfolios is diversification and to obtain diversification investing in individual stocks is extremely expensive, it would cost tens of thousands of dollars to create a portfolio that held just one of each of the stocks in the S&P 500. Not to mention the amount of transaction fees you would rack up. The obvious alternative to this mutual funds and index funds.

Mutual funds on the other hand offer the diversity and balance needed for a successful portfolio and there are a wide range of funds that track the different indices, sectors and markets. Mutual funds do have their drawbacks though. Most mutual funds have a minimum investment, $2500 is not uncommon. Additionally, mutual funds carry expense ratios and fees that can take a huge chunk out of your earnings. Mutual funds are meant to be held long term and you don't have as many options as you would with individual stocks. On top of that the majority of actively manages mutual funds fail to beat their benchmark.

ETFs To The Rescue

ETFs offer the best of both worlds. You receive the automatic diversification that you would with a mutual fund but it behaves like a stock. This means that you can buy as little as one share. ETFs also have lower expense ratios than their mutual funds counterparts.Unlike mutual funds that are priced once daily, ETFs price fluctuates throughout the day just like a stock. Since ETFs behave like a stock, you have the option to short sell and buy on margin.

Additionally, there is an ETF for pretty much everything you can think of. The most common are Spiders (SPY) which tracks the S&P500, Diamonds (DIA) which tracks the Dow Jones Industrial Average and Cubes (QQQQ), which tracks Nasdaq 100. There a so many many more though for every index and every and sector. ETFs are also broken into categories such as large cap, small cap, growth, value, etc...There are also ETFs for bonds and fixed income and they too are categorized into everything from total bond market to short term bonds. There are even ETFs for commodities such as gold, oil and silver.

The only costs involved in purchasing ETFs are you're regular transaction fees. You can buy stocks free or at a low cost with either www.zecco.com or www.sharebuilder.com

Good luck and happy investing,
Finance Girl

Why You Should Invest In Money Management Software

If you don't know where your money is going, its time to invest in a money management software program if you don't already have it on your computer. I've tried both Microsoft Money and Quicken and find both of them to be excellent for managing personal finance and taxes.

After about a month of tracking your finances you will have a rough idea of where you are spending and what areas you can make some budget cuts. However to get a really good assessment you will need about 3 months.

One great feature of money management software is that you get to see the big picture. The software generates reports and graphs that show where your money is going for both the month and the year to date. You can also see how much you spend in each category for these periods.

You can easily import credit card, bank and Sharebuilder statements to the program and manage them from there. The program will even download unbilled transactions.

In addition to being able to categorize your spending and track accounts, you can manage bills and due dates and the program offer due date reminders. Both Quicken and Money allow you to pay your bills online and schedule payments.

If you have investments, both software programs allow you to manage your portfolios. They also retrieve historical, value and fundamental data on your securities. Quicken also allows you to access accounts online and download recent activity at scheduled intervals. This is particularly useful in the Investing Center because it allows you to track your stocks daily performance, in percentages and dollar value gains and losses.

My favorite aspect of these programs are that they generate excellent charts and graphs that allow you to compare your spending, balances and investments both to each other and over time.

Money management software is essential to getting a hold on your finances and keeping track of your financial history.

Yours Truly,
The Finance Girl

Negative Savings Shocker

I was recently appalled by a statistic I came across stating that in 2005 the American personal savings rate averaged -0.5%. We have gotten so used to living above our means that we have reached a savings low that hasn't been matched since the DEPRESSION!

Spending more than you bring in is nothing but a recipe for disaster. I know it's a challenge to live within your means but it's a bigger challenge to live under a growing pile of debt.

As Thomas Fuller said, ''Debt is the worst kind of poverty.'' If you're living in the red, you're in pretty bad shape and any money you make isn't really yours, it's your debtors! But there is hope if you can discipline yourself and figure out what method works best for you. Then you can not only be debt free but you can also begin to grow savings and do your part to increase this nation's embarrassing savings rate.