Entries Tagged 'Retirement' ↓

When your retirement money is invested in a really bad market, the first thing you want to do is think about reallocating. Reallocating means changing the portions of your money you have invested in each mutual fund. As you have seen, your 401(K) provider probably lists suggested allocations for your portfolio based on your age, and consists of what percentage your money should be in stocks, what percentage in bonds, and sometimes they tell you a percentage of your 401(K) to put in cash.

But these percentages go out the window in a recession or depression, because you want safety no matter when you are retiring. For the past year, stock prices have plunged. The allocations are probably wrong for your particular risk appetite. And if you call your 401(K) provider or employer, as I have, they will probably tell you, “Stay invested!” or “We feel the allocations are appropriate.”
Well, they really just don’t want you to move your money!

No, you have to learn how to reallocate your stocks on your own – based on a new market, and wait until things change or get better. There is no reason to stay in losing funds when you can reallocate to wait until a change for the better.

Now if you’re thinking of putting your 401(K) into cash, you should understand that that doesn’t not mean taking your money out of your retirement account. this could incur penalties that total a large percentage of your money – so don’t add penalties to your losses.

When you invest in your 401(K) instead put it into cash vehicles. Your broker will offer at least one or two of these accounts, since their plan allows for older workers nearing retirement to move into safer investments. These are the investments you want to take advantage of for now.

For example, if your broker offers a sample portfolio balance for someone within 3-4 years of retiring, use that for the their safest vehicles. some of these might be bond funds (usually government bonds), and some will be savings or money market options.

If you don’t want to take their advice, then see what funds or accounts they do offer, and move the portion of your money you want to protect into these vehicles. this is the way to move your 401(K) into cash, not by withdrawing all of your money. Then as the market slowly gets better, start moving small percentages back to stocks, based on the performance of the stock market. This is the beast way to use cash n your 401(K).

As a result of the financial turmoil, there are plenty of families which will be torn between putting aside money for retirement, and saving for college for their children’s college education.  Many parents now paying for private school in grades K-12 are now rethinking that decision.  As for college costs, they keep rising, and enrollment in local community colleges is skyrocketing. Yet do parents always have to pay for college?  If high school age children are encouraged to do everything they can to apply for all available grants, treating it almost like a part time job, they may find that there is cash available.  In addition, holding down a part time job or two in the summer can give teens a way to afford school.  When parents give up financial security in their old age in favor of paying tuition today, that is probably a far bigger danger than the impact on their children of having to attend a community college instead of a major private university.

There are plenty of state colleges that are priced under $20,000 per year for state residents, including tuition, fees, books, and room and board.  A part time job that pays $10-15 an hour can cover a large portion of that amount.  Community colleges are far less, especially if the student lives at home for a year or two.

Spend Less for Entertainment

Do you really have to cut back on entertainment jut because your budget is cut back?  Not really.  There are really hundreds of things you can do, for less.  One website, GoCityKids, offers lists of things to do, free and paid, for dozens of locations around the country.  Public libraries are now swamped with requests for movie rentals, music rentals, and the old-fashioned book.  Many municipal and college libraries show films to the public.  Schools, colleges and local orchestras offer free concerts.  Some communities sell discount tickets to events like theater and concerts, along with movie and museum tickets.

Are We Addicted to Debt?

You probably know where the term “con” comes from – as in, to “con” someone, or a “con game”.  It is short for “confidence”.  By gaining your confidence, someone rips you off.

That’s what we’re seeing right now. People are afraid. They do not feel confident – confident that they will keep their jobs, confident that they will keep their homes, confident that their retirement investments will be there when they are old.

Television, web sites, financial advisers, the analysts on Wall Street, the Wall Street bankers – all are playing a huge confidence game, and we, the investing public, are their victims.  These vultures have really benefited, ever since the 401(K) really took off, and it was clear that regular Americans, now deprived of pensions and other ways to retire comfortably, would just shovel money in without really  knowing anything at all about wise investing, on the promise that “over time, the market returns 8%-10%-14%” you name a figure.  The whole thing has been a con.

But really, what I wanted to talk about is confidence, and how to regain it.  Think:  What would it be like to feel confident that your money was safe, right now?  Think of the stress that would be off your shoulders.  Think of how you would breathe easier, knowing that whatever the market was doing, up or down, you are in a secure position, not losing, not having to learn more than you have time to learn, or more than you can understand.  Not know what the heck to do as you watch the market numbers go down.

What would it take to feel confident that your money was safe?  A friend of mine was completely freaked out, and kept asking me, What should I do with my retirement accounts? (This was last November, she was down 15%.)  I told her I thought the markets would keep going down, for some time, but that was just my opinion, and she needed to do what she felt was safe.

Her adviser (who was completely ripping her off in fees by the way, but she didn’t know that) kept saying “Oh no, you are in for the long term, don’t worry about blips in the market.”

Yet when I looked at my friend, all I saw was worry!  She kept saying she hated the markets, hated having to think about being in stocks.  She did not like the stock market, did not like that she couldn’t understand it.  Her confidence was shattered, and so was her emotional well-being.

I asked her:  Given how you feel right now, are you willing to bet what money you have left that not only will the markets stop going down, but that they will go up enough in one year to recoup what you’ve already lost?  Her answer was no.

I said to her:  If you are this uncomfortable in the stock market, take your money out!  Get this monkey off your back!  You can earn small but secure returns in money markets, CDs, and even learn later about government bonds or other less risky investments.  Will you earn 8%, 10%, 12%?  No, but that is never a sure thing anyway.

She moved all of her accounts to money market funds.  Her relief was palpable. She could breathe again!  She did not have to spend day in and day out worrying and watching tee vee, watching her hard word slip away from her.  Today, she feels a whole lot better for sure that she’s missed the downturn in the last 4-5 months as well.

If you feel insecure being invested in stocks, if you do not have confidence that  your money is in a secure place – then move it. Now. Today.  If your advisor tried to talk you out of that, remember that they have a vested interest in getting fees from you.  Move your money out of their claws.  Your gut is at least as accurate as any investor – including me!  No one has any answers in a market – possibly a depression – like this.

In case you care, and I’m not saying you should do any of this, here’s what I would do, and actually is what I am doing right now:

Move your money to a high-interest savings account.  ING Direct is a good one, and if you also open chekcing, you can access your money wit a debit card.  High Interest these days is just under 2%, but would you rather make 2% or lose 25%?

One your money is safe, then learn about what is out there that is cash or cash-like, and then move some money into those accounts. For example, there are government bond mutual funds like GNMA, or inflation-adjusted bond funds or ETFs where you can invest, and earn a few more points, and your money is relatively safe.  Note:  Funds and ETFs are not insured accounts. For FDIC insurance, you shoudl be in a money market, or CD, and verify it is insured with the institution.

You can then take some money out of savings, and open accounts with a low-cost broker like TradeKing.  Buy into some of those cash-type vehicles through these low fee brokers.

Once you are securely set there, you can explore other ideas, like buying some gold or silver, or some commodities, or buying stocks in foreign countries like China, which are available as ETFs or within a fund.  (I prefer ETFs but more on that another time.)

I also only put the company match into my 401(K).  I put extra money into a ROTH and Individual IRA outside my company, into a self-directed brokerage account, where I can decide for myself where to invest my money – I’m not stuck with the investments and rules my employer decides is right for me. They’ve already proven they have no idea how to protect my retirement interests.

The bottom line is, you need to restore your own confidence.  The so-called advisors are not going to help you.  Television is not going to help you.  If you are scared, fearful, anxious, take steps NOW to remove that stress from your life.

Your money can in fact be safe, and there are in fact places to invest where you can make money right now.  Just not in the ways that the con men will tell you about.

Here are just a few questions you won’t see asked or answered on the so-called money shows on television:

1.  What if this is a depression? What if it’s not a short term bear market?  What happens to my retirement money? Where should I put my money in a depression?  Do you have any idea?  (Remember – It took them a year to call a recession – only 12 months late… but we knew it, common sense told us.)

2.  If 12-15% of Americans are out of a job (both those on unemploymnet and those who have run out of unemployment benefits and have just stopped looking), an unspecified percentage have part-time work that need full time work, and those of us with a job have no idea whether we might lose or keep the one we have, and none of us want to spend our money and we can’t get any credit, and even if we did, we probably won’t get our hand caught in that tiger trap again, tell me where will the profits come from so that big companies will make money, and start a new “bull” market?  Or even an “up” market?

3.  If you can move your money right now into an investment vehicle that will at least earn 2%, 3% or 4%, why shouldn’t I do that while I wait for the market to get better?  (Don’t just tell me not to do it, tell me WHY.  And then tell me why it’s OK to lose another 20% while I wait for the market to turn.  And if you tell me again about what the market has earned “historically”, I will kick your ass.  I am not stupid, I have a calculator…)

4.  If you lose 20% YTD in your investment account, your new lower balance wil have to return 25% to get back to square 1.  (For example:  a loss of 20% off of $5,000 leaves yo with $4,000.   But to make back $1000 on $4,000 is a jump of 25%.)  So when they tell you to wait for the market to “come back” – how far will it have to increase to just get back to where you started?

5.  What if the markets stay depressed for another ten years?  And there is no climb like we’ve seen the past 30 years?  We have already lost enough in the market to erase teh last 12 years of gains.  So, should you believe them when they tell you to take a 20 year time horizon?

6.  If you take your money out of the market, put your money in CDs or inflation adjusted bonds, or government bonds, or other more reliable vehicles, the huge Wall Street behemoth – financial advisors, mutual fund companies, television talk show hosts – they don’t make any money.  Need I say more.

I am just about ready to go on a crusade against Carmen Wong Ulrich of CNBC’s On The Money.  Her show last night was criminal in the bad advice it shoveled out to listeners.  I am not going to link there because you SHOULD NOT WATCH THIS SHOW (that is if you can tolerate her nails-on-blackboard voice for more than ten minutes).  If you have been listening to her since September, she has NEVER told her viewers how to be defensive in this market.

It’s truly hilarious, if it weren’t so sad: She starts out saying “We’ve lost 20% this year, and a decade’s worth of gains.”  So what’s their advice?  Keep putting money into the market!!

If you have stock mutual funds in your investment account and have been listening to her since September and taken her advice to stay in the market and continue to invest, YOUR 401(K) IS DOWN AN ADDITIONAL 25% OR MORE.    I already have a problem with investing in 401(K) products, they are not designed for people who don’t know what they are doing, and can be very dangerous – as so many are unfortunately finding out right now.

If you had done the OPPOSITE of what she said, and got your money out of stock mutual funds, and instead put your money into “conservative” investments – government bonds for example – you would be up anywhere from 1% to 5%.  You would effectively be up 30% because YOU DIDN’T LOSE that 25% and in fact MADE money!

Which position would you rather be in?  Why are you listening to this person?

Remember – she works for CNBC.  This is the channel that continually trumpets the market bottoms; ask “when is the market going to turn”; trying to convince people that it’s a “good time to buy” and the market is “on sale”.   Jon Stewart put it perfectly. You should really really watch that video.  Then shut off the tee vee.

Her show’s “experts” talked about long term investing, putting aside what can wait for long term gains, and saving what you need short term.  They describe how to take into stride the bear and bull markets.  Except for one thing:  This is far different than typical swings in the marketplace. This is not just a “bear” market.  This is a RECESSION, and it could become a DEPRESSION.  None of these so-called “advisors” are telling you how to invest in a depression…  because they don’t know!

If you listen to Wong Ulrich, and follow her advice, you are selling out your investments to the professionals.  When the market goes down, someone has to buy when someone sells.  When professionals sell, can you guess who is still buying at these prices?  And who is continuing to buy on the way down?  That’s right, it’s YOU – you are financing the exodus from the market by the professionals.

If you are trying to figure out what to do with the mutual funds in your 401(K), if you are watching your investment account shrivel up and die, Wong Ulrich is a PERFECT example of what is wrong with the talking heads on television who supposedly are “helping” you figure out whether to get out of mutual funds.

I wish I could contact the poor souls who called in to her show yesterday.  There were two in particular:  J who is only 29 and S who is 44.  I hope to God they did NOT take her advice (and WHY the hell are they calling her in the first place to learn what to do!!????).

J at 29 had moved his money into a conservative account until things get better.  He is taking the 3% he can get there, and waiting for the market to get better.  The “expert” she had on her show, “K.T.”, another advice catastrophe, told J that “You’re too young to be in a guaranteed account” – What the hell does that mean?  That he should lose money because he’s “young”?  That he can’t move his money in a year when the market looks up?  That he needs to lose even more money so he can be there when it starts to move up?

I’ll ask again what I ALWAYS ask – Why should you lose more money, for another year? Two? Three?  Why not SAVE what you have now?  There is this amazing buy-and-hold myth that the investments in your 401(K) shouldn’t be touched. Why?  If that were the case, they would prevent people from ever reallocating.   But you can make changes for a reason – to save your money!

J had it right:  He has reallocated his investment into something that is making money!  I hope he IGNORES HER ADVICE, and the advice of her fellow idiot, K.T.

K.T. should be thrown in jail as a danger to anyone trying to save what tattered investment accounts they still have left.   His firm is touted by Barron’s Magazine.  So. What.  Listen to the “advice” he gives to J:  “OK, so you’re losing money but do you want security today, or security tomorrow?”   What he’s telling this poor guy to accept is NO security today, and LESS security tomorrow!  That’s his professional advice!!  These people should be kicked off tee vee as dangers to the public!  He says: “The last day of the bear market is the first day of the bull market.”  Pithy, but what the hell does it mean?  Good thing he has little pithy things to say as you continue to lose your hard earned money.  Carmen responds:  ” And you want to be there when it turns!”  Well what would stop you from moving your money into the stock market when it truly has turned?   Nothing, actually, other than feeling confident that it’s time to move into stocks – and not still uncertain because you’ve been burned by talking heads who  know nothing about how you should really invest, choosing instead to spout “conventional” – meaning wrong – advice.

How about security today AND security tomorrow? How about protecting your investments, your hard work, your sacrifice?

Funny, Wong never asks her guest, “How much cash is YOUR company holding right now?  What percentage of your accounts are in LONG stocks? and what are your 12-month and YTD returns?”  Hmmm??

This rant is WAY longer than one post.  Stay tuned to hear the dangerous advice she gave S, a 44 year old man who’s lost 40% of his account already…

And I’ll explain what options you have, to help you keep your money safe. Sort of.

Update: Due to pressure from the guest on the show, we’ve changed his initials. The advice still stinks. Read this post about Self-Directed Discount Brokers, and click the link to Why I Fired My Broker from the Washington Post. Remember – just because we are in another bubble, does not mean this advice is sound, solid, and reliable for the long term. We are still off 20-30% from the highs of 2007. Many other experts believe we are in another bubble that is going to burst eventually. Use your judgment. Learn exactly WHY the stock market is up since March (i.e., the banks have been infused with your tax dollars, the S&P is overweight with financials, etc.). Learn, and determine for yourself whether this is sustainable, and where your money is safest – don’t rely on “conventional wisdom” and “buy and hold”, including the posts on this site. Don’t throw away a percentage of your return potential by spending it on “experts”, paying fees and charges that are unnecessary. Do your own trading in a self-directed account, otherwise don’t expect to win in the markets, they are stacked against the small so-called “investor” who doesn’t want to know anything about the market but expects to be rich in 20 years. Too many people have already learned the hard way that this doesn’t work – don’t be one of them.