How to dodge the debt train

Debt is a problem, and it will come calling home sooner or later. Be prepared. It could cause massive upheavals in global financial systems, and result in large moves down in markets. See my previous post on debt.

But do not be afraid, just be prepared. I subscribe to a free weekly newsletter from John Mauldin called Thoughts from the Frontline.  You should subscribe. It's worth your time.

In the July 20 issue, he provides this advice to small investors. 

If you are early in your investing career or still consider yourself small, the most important things you can do are:

1. Simplify your lifestyle and save more money. That’s not particularly fun, but in the long-term will pay huge dividends.
2. Get out of debt. Do not carry debt on credit cards. Pay your credit cards off as quickly as possible. Saving is easier when you aren’t paying 18% interest. You’re not going to get 18% on your investments.
3. There are a whole host of options for how to save. For small investors, there is not much magic. Some of you are going to roll your eyes, but I suggest reading some books by my good friend Suze Orman, or (if you have a more religious bent) Dave Ramsey.
4. Move as much money as possible into tax deferred accounts. Taxes are the #1 killer of investment returns... 

Where to invest? Now I’m going to talk out of both sides of my mouth. For smaller accounts, use low-cost index funds or ETFs. But consistent with my philosophy, you do not want to buy and hold forever. You need some kind of risk management rule. If nothing else, use the web to run a 200-day moving average on whatever index funds you choose. Check once a week and if your fund goes below the moving average, then rotate into a short-term Treasury fund. Jump back in when it crosses above.

I couldn't agree more.