I know I’ve been stuck on the economy of late, even more so by the latest announcement concerning our GDP:

“The Commerce Department reported Thursday that gross domestic product increased at a feeble 0.6 percent annual rate in the October-to-December quarter. The reading — unchanged from a previous estimate a month ago — provided stark evidence of just how much the economy has weakened. In the prior quarter, the economy clocked in at a sizzling 4.9 percent growth rate.”

Looks like we’re on a one way trip to recession town, but I’m curious as to when I’ll feel the pinch. Maybe it’s because most of my discretionary income after living expenses is either saved or used to pay off debt. Speaking of debt, my car will be paid off in August! Talk about an exciting feeling! But back to the matter at hand…

I dug around for some steps to take when heading into a recession. These steps should help shield you from the worst of the storm, and allow you to emerge ready and full of money on the other side! For the sake of diversity, I picked out a varie

•  My Personal Favorite from NPR.org: “Avoid Investing in Retail and Financial Sectors. These markets are taking a big hit right now, AuWerter says; though it is likely that there is money to be made here in the long term, it’s going to be a rough ride. She says that average investors who don’t have the stomach for volatility should avoid these sectors.”
• About.com says we should Spend Less: “Delay or eliminate unnecessary purchases. Then, add the savings to your emergency fund.”
• Kubler Financial president and founder John Kubler says we should “Turn off the TV or shut off your monitor.”We live in such an information age, where now you get a lot of immediate experts, so when stuff gets a little whacky — emotions come into play,” Kubler said. “That can be where you end up screwing up your financial future.”

What about you? What steps are you taking to make sure your nest egg stays intact? Are you moving into more conservative investment vehicles? Going International? Looking for a new job? Feel free to let me know.

It appears that my discretionary portfolio has managed to stage a precarious turnaround for the year. This past week it managed to pull out a year to date return of 1.14%. This doesn’t really sound all that great, until you put it up against the market’s return. The S&P500 is currently down 9.46% Year to Date (that’s as of Thursday’s close).

+1.14% sounds a lot better than -9.46%, though much of that return has been driven by my bottom-feeding on Bank of America. Whether those gains will hold as the year progresses is anyone’s guess at this point!

In other news I’ve really been focused on creating additional streams of alternate income. While my emergency fund is well buffered and my investments continue to grow, I’ve been searching for ways outside of my current job to bring in more money. While I wouldn’t be completely opposed to a part-time job after work..I’m not sure if I’d like to take that route unless I really need to (if circumstances demanded, I’d be working all day and night).

One such idea that has come to fruition is the concept of building small niche sites. These are small and informational nature, with very specific keywords targeted for a particular topic. Our first project was focused on a hybrid car, with back links from various blogs and other sites, we’ve managed to pull in about 20-30$ a month in ad revenue. Not something to retire on, but we update the site once a month (takes about 15 minutes) and the money rolls in. Talk about passive! Whether we’ll be able to replicate that success in future endeavors is of course the million dollar question, but I’m not complaining!

In my discretionary brokerage account, I recently picked up a new holding that is definitely my riskiest play to date. If you’ve ever followed my thinkings on investing and income, I tend to be a “for the long haul” kinda guy. I don’t like making trades, I like making investments, and much of the time that includes eating some losses in the short term. I prefer to seek out solid dividend-paying stocks to build up a source of income, and I’m not entirely against taking risks, especially in my discretionary account where I can afford to lose the money.

Again, it’s important to reiterate that this isn’t my IRA or 401k, those are invested mostly in equities and in index funds. Bank of America, however, has been on my list well before the subprime mess broke and everything went nuts in the market. If you’re looking for insight into my investment analysis, I’d liken it mostly to dividends matter.

With the recent credit crisis, Bank of America has gotten crushed, I mean just absolutely slammed, going from 50ish dollars a share down to as low as 33 dollars. Given the BAC did get burned fairly badly by the whole subprime ordeal, but is also one of the largest banks in the country, I snapped up some shares while the getting is good.

With BAC’s recent acquisition of Countrywide and more write offs looming on the horizon, we are not out of the woods yet, and the stock could very well go even lower than current levels.

That, however, is a risk I’m willing to take.

I’m always fascinated to hear stories of people who never made much money but still came out rich. Much of this is due to to the immediate cynicism people have at the prospect. If I even mention becoming a millionaire to someone who makes around the median income for the US, I am shot down by a number of negative complications? These include:

• Kids
• House
• Car
• Medical Expenses
• Nothing left to save/invest now, much less later

Given that people seem downright opposed to the thought of someone of the lower-middle class getting to millionaire status, how did this guy do it?

You can see the video here.

This guy made sacrifices that not many people would make. He rarely watches TV, doesn’t have a cell phone, and doesn’t buy books. Personally I wonder what he does do with his time, but seeing as I don’t watch much TV either, I can definitely empathize. These stories help to reinforce the thinking though, that anyone can be a millionaire, if they are willing to make the sacrifices to get to it.

Time.

There, I said it, the key to the universe of wealth and a lifetime of money is time. If you’re over the hill of course, this doesn’t mean you are counted out either, but it is going to be tougher for you since you have less time to take advantage of compounding. How much are you gonna need to retire a millionaire? A recent article at Yahoo Finance has the answer, assuming an 8% annual return and a retirement age of 65:

• At Age 25, starting at 0: You are going to need a mere 286$ per month to retire at 65 with a million dollars.
• At Age 35, starting at 0: That number increases to 671$ per month. This is manageable but that’s some aggressive savings

It’s amazing what just 10 years of saving can make, right? There are additional figures for those over 35 as well, they can be found here.

Now, while $286 per month should be manageable by a young person at the age of 25, its important to take into account one key variable: inflation. A million dollars is worth quite a bit now, but it’ll be worth substantially less (huge rate cut by the Fed today, anyone?) by the time you hit 65. With this in mind it’s important to take the above numbers with a grain of salt. You’ll likely want to well overshoot these savings goals to compensate for the degrading effect inflation will have on the value of money.

For the record, I hate inflation.

-Xias