Bailed out... what now?

Now that our government has passed a version of the $700 billion economic bailout plan, investors are wondering when the market will start to reflect that positive news. This week was the third worst week ever, in terms of points lost. Many investors saw investments wiped out as they bet financial giants like WaMu would recover or be helped by the bailout.

Yet the real issue behind this whole economic mess is the housing bubble. The markets likely won't make a full recovery until the housing market has hit the bottom. And when is that, you might ask...

Well, over the past 8-10 years housing prices soared. Meanwhile, wages and salary played the part of the tortoise and slowly crept along. It's unlikely that the housing market will bottom out until home costs reach a reasonable level. That's not to say that stories like this should be expected very often.

So what's the average investor like you or I to do? If the markets aren't going to cooperate, should we just pull our money out of stocks and hoard the cash?

Well let's take a look at an example of a well-known company over the past year: McDonald's. You could say that the golden arches operate a fairly recession-resistant business. No matter the state of the economy, we're going to crave our Big Mac's and those deliciously over salted french fries.

Starting on October 1, 2007 with a $100 investment in McDonald's and putting another $100 in each month to date, we'd end up with a total investment of $1,300 and a total market value of $1,368.30. While a 5.3% return may not seem like much, compare that to a negative 23.61% return from the S&P 500.

It hasn't been a pretty year in the markets, but as you can see, there are still some great companies out there.

Another example of a smart money move right now could simply be putting your money in a money market account. I opened one for my girlfriend the other day with just $500 and overnight she had made 8 cents in interest. Not too bad for doing nothing.

My point isn't that you should by McDonald's (although it may not be a bad choice). You also shouldn't hide your head in the sand and wait for the government to sort out the economic mess. What you should be doing is seeking out good companies with solid fundamentals and a management team with their investors best interest at heart.

For those interested, I look for companies who have a long history of paying dividends (increasing them ideally) and management teams who are invested in the company themselves and have been with the company for a long time. A relatively low price to earnings ratio (P/E) and a high return on equity (ROE) are also good to look for. You can find all of this information very easily on a website like Google finance or the Motley Fool.

Happy hunting!