401K Question

[Derek]

My wife has a pretty good 401K. Needless to say it's taken a big hit. She can invest 15% pre tax, and her company will match 5%. Right now she has the max taken pre tax + the 5% company match. With us being in our low 30's should we stay maxed out to the 15% and continue to bye as much as we can while it's low. Or say lower it to 10% and hold the extra cash in some type of insured acct.

[kaisfate]

YES!! :) You have plenty of time, IMO, think of it this way...its a clearance sale on stocks. If Macy's was having a clearance sale would you leave the store??

Disclaimer: this is completley my opinion and does not represent the actual feelings or views of Beesource or what the outcome of your retirement may be :)

[iddee]

As I said in my other post, it happens with each change of presidents. Keep putting in all you can and make additional deposits if allowed. The majority of coca-cola stock owned by individuals was bought before 1929. The ones who bought it, or their heirs are living on the dividends today. The market will come back.

[cow pollinater]

One investment strategy that rarely fails is to invest the same dollar amount each month. That way when the market is down, you are automatically buying more shares. When the market peaks you are getting less for your money so there is less risk if the market collapses.
That being said, now is a good time for young guys to go out on a limb and pump whatever they can into the market. There is still risk but most likely you will have an awsome return in the long run.:)

[Gene Weitzel]

I tend to agree with the comments made here since you folks are young and have plenty of time ahead for the market to recover. This old geezer somehow got nervous back in July and moved everything into a money market fund. Turned out to be a pretty good move for me as my 401K is only off about 8%, whereas if I had left it all in the equity funds it would be down at least 40%. I will probably move part of it back into equities when it becomes pretty clear that the market has found its bottom. At my age, since I have a pretty large balance at risk, I have to maintain a little less risky asset allocation, which means a lower return, but thats Ok now for me.

[walking bird]

Ah, if only I had been as prescient as you, Gene. I now have a 201K, and only barely. I continue to toss the maximum allowable contribution to the breezes each and every week...

However, while that 401k used to be a fairly substantial amount, I've also got a nearly similar (albeit stagnant) amount in a steady, boring, 5% per year growth account, so I figured I was staying balanced enough to take the risk.

Oh, well. It's still gonna be a decade or so before I start to draw out of the 401K, (I hope!) so I'm hanging tough. I just don't look at it anymore. :cry:

If I were 20 years younger (i.e., the age of the original thread-starter) I'd DEFINITELY stay in stocks and continue maxing your contribution, just as others have advised.

[randydrivesabus]

Not just to be contrary, but I think diversity is where its at. In your case a higher percentage in equities is OK. But I think real estate is also not a bad investment right now.

[Bizzybee]

We just got a notice of a change yesterday. We were getting a company match of 50% on the first 6% of contributions. This coming year we'll get a dollar for dollar match on the first 4% of contributions. That'll help stop a little of the hemorrhaging with a 33% increase, but my last statement still left me in tears................. Geeese :cry:

[Derek]

I thought I should keep buying more or maintaining the same %. My investments are more on the safe money market. But the wife's I keep in the equity funds. So she's down pretty good. Close to what Gene's would be. % wise. But since we don't plan on using this money in the many years to come. I think it will pay good returns in the decades to come. Alot of good advice and tips here. Thanks guys and gal.

[magnet-man]

Derek, If I was in my low 30's and had money in a money market, I would move it to an index fund like the Russel 2000.

[Scrapfe]

Derek, If I was in my low 30's and had money in a money market, I would move it to an index fund like the Russel 2000.

I believe the DOW average took from 1929 to 1954 to recover 100%.

[Derek]

Derek, If I was in my low 30's and had money in a money market, I would move it to an index fund like the Russel 2000.

I will look up the Russel 2000 tomorrow. Don't know much about it. But I will look it up if you don't want to explain it. The one/main reason I keep money in the money market is I can get to it easy if I need it. Low return. But I give my investment company x amount of $. So much is automaticlly devided to Money Market, Roth, ect... But I can add $ to either/or fund seperate.

[Derek]

I believe the DOW average took from 1929 to 1954 to recover 100%.


25 Years. I will be 57. If I keep buying now. That might turn out to be a nice return.

[Galaxy]

Yes, you got some very good advice from the posters. At your age, the best approach is to put most, if not all your investments in ETFs that invest in diversified equities.

Since 1802 there have been very few rolling 30 year periods where equities (stocks) did not produce a better return than bonds.

In evaluating nearly two centuries of stock returns (1802–1992), University of Pennsylvania professor Jeremy J. Siegel found that for nearly all of the rolling 30-year periods from 1882 to 1992, stocks provided returns at least 5% higher than inflation and higher than cash or bonds. In his book, Stocks for the Long Run: A Guide to Selecting Markets for Long-term Growth (McGraw-Hill, 1998), Siegel concluded that, “Although stocks are certainly riskier than bonds in the short run, over the long run the returns on stocks are so stable that stocks are actually safer then either government bonds or Treasury bills.”

While Siegel’s time horizons may seem extreme, his data show that the benefits of stocks also apply to shorter time periods. He contends that for periods of 10 to 12 years there is little risk in stocks compared with bonds or cash. For periods of 20 years or more, Siegel believes cash and bonds carry more risk than stocks. http://www.journalofaccountancy.com/Issues/2001/Aug/LessonsOfABearMarket.htm

One rule that is often used is to put your age in bonds and the rest in diversified equities. So, at 30 you would have 30% in bonds and 70% in equities. At age 65, you would have 65% in bonds and 35% in equities.

[Derek]

One rule that is often used is to put your age in bonds and the rest in diversified equities. So, at 30 you would have 30% in bonds and 70% in equities. At age 65, you would have 65% in bonds and 35%in equities.

That's a pretty good tip. At age 50 I would add 5 years maybe. Again. I don't know ETF's. But I will read about it in the days to come. I may be in funds like ETF's and Russel 2000. But I don't go over my funds with a fine tooth comb. I will now.

[Galaxy]

I believe the DOW average took from 1929 to 1954 to recover 100%.
This is mis-information usually foisted on the public by market timers and gold bugs.

Many people have seen the chart of the Dow Jones Industrial Average (http://finance.yahoo.com/echarts?s=^DJI#chart1:symbol=^dji;range=my;indicat or=volume;charttype=line;crosshair=on;ohlcvalues=0 ;logscale=on;source=undefined) following the 1929 crash, which appears to show that it took 25 years for the stock market to regain its former high. This is a key argument of those selling strategies like market-timing and defensive investments like gold.

The 1929 example, and others like it, foster a giant misconception that colors the decision-making of many investors. Mark Hulbert wrote an excellent article (http://www.marketwatch.com/news/story/popping-internet-bubble-should-have/story.aspx?guid=%7BBC56B6E1-F3A9-4DE7-91F9-3BA84FE9E105%7D) on this subject last year, in which he made several crucial points. One was that looking only at the price of the Dow over those 25 years, rather than its total return, leads to a distorted conclusion:
"Dividends also played a big role in stocks' recovery from the 1929 Crash and subsequent bear market. Consider the stock series constructed by Jeremy Siegel, a finance professor at the Wharton School of the University of Pennsylvania, and author of the classic book 'Stocks for the Long Run'. He shows that, for all intents and purposes, stocks on a total-return basis in late 1936 and early 1937 had risen back to their September 1929 high, before entering into another bear market. This puts the recovery time at a little more than four years from the stock market's July 1932 bottom."

Sadly, because these misconceptions are foisted regularly upon the investing public, many investors fear bear markets intensely and make poor decisions as a result. http://www.soundmindinvesting.com/visitor/2008/feb/openline_1.htm

[mike haney]

I believe the DOW average took from 1929 to 1954 to recover 100%.

just think, if we followed the "EXCELLENT LEADERSHIP OF GEORGE W. BUSH" all our senior citizens would only need wait 30 more years!

[tecumseh]

just so I can out whine walking bird our 401k looks more like a 101k.

if the employer is matching at some level then definitely maintain this level of investments. beyond this.... investment diversification is good especially if you really don't have the time or inclination to micro manage your investmensts*. if you are lucky enough to be residing in some area that is growing (vs some know areas where the population has declined steadily) then real estated would be my stated preferred investment alternative.

*andrew carnagie (sp????) idea of investment was the polar opposite from diversification... his idea was 'put all your eggs in one basket and then watch that basket very closely'. there is an obvious time committment to maintaining this investment strategy.

[George Fergusson]

25 Years. I will be 57. If I keep buying now. That might turn out to be a nice return.

Everyone here is assuming the market is going to continue to function as it has over the years and rebound again, just as soon as it finds a bottom. Most people believe this is a "typical" cyclic economic downturn and they trust the Fed and the Treasury implicitly to successfully manage and manipulate the economy into another recovery. And why not? It's happened before, it can happen again.

However, not everybody believes this will happen, either not at all, or not for a long, long time. Such warnings are usually dismissed without really ever being investigated. What is happening now is not a "typical" cyclic economic downturn.

Anyways, I don't expect converts to my gloom and doom perspective but I had to insert the seed of doubt into this otherwise overly-optimistic thread.

If I had a good revenue stream coming in (i.e., a good job) my tactic NOW would would be to pay down my debt just as fast as I could. Derek, what is your debt load like?

[iddee]

Look at the other side, George. If we are wrong, things will be so bad that debts will be suspended, cash will be non-existent, "not backed by gold and silver", so worthless.

Houses will be free for just occupying, as they will legally belong to the tax dept.
There will be no fuel, so cars and trucks will be abandoned.

So if we are right, buying stock is best.
If you are right, it is all mute.
I think it is a win or break even bet that the market will recover.

[Derek]

If I had a good revenue stream coming in (i.e., a good job) my tactic NOW would would be to pay down my debt just as fast as I could. Derek, what is your debt load like?

House, 2 cars, wife :D. Zero credit card debt, And some land I bought to build a house on one day. 1 year to go on the land note. Then just your everyday bills.

[Hobie]

It would be foolish to throw away the "free" company match money. Factor that in to the actual percentage you are making on YOUR contribution.

Plus I think, if you can afford to do it, now is the time to buy, albeit wisely.

[George Fergusson]

House, 2 cars, wife :D. Zero credit card debt, And some land I bought to build a house on one day. 1 year to go on the land note. Then just your everyday bills.

I can't tell from your response what your debt load is but I assume since you mentioned them that you owe on your house and 2 cars, as well as the wife :) Your investment in a piece of land may well be the best investment you got, possibly second only to your wife. We are entering a period of frugality. If I were in your position, I'd be paying down my debt and not putting money into a 401K at this time.

Just wanted you to get a different opinion on this :)

Plus I think, if you can afford to do it, now is the time to buy, albeit wisely.

Is that what you're doing? If so, how is it working out for you?

[randydrivesabus]

I agree that it would foolish to pass up the free co match. It's not clear what your 401K investment options are under your plan.

[George Fergusson]

I agree that it would foolish to pass up the free co match. It's not clear what your 401K investment options are under your plan.

So it's OK to throw your own hard-earned money into the Wall Street Money Incinerator as long as you can toss in your boss's hard-earned money too?

[tecumseh]

If you think the market has bottomed out then the 401K approach is likely a winner. If you think the market has not bottomed out then not so much... even with the employers assistance.

the 401 thing has definite tax liability advantages (+ credit angles if you desire to build these)... thinking you know what any particular 401 investment option actually represents (vs what they tell you it is in order to sell these) is almost impossible. once you do invest in any particular option you will then be totally mentally confounded with the stream of 'revised investment statements' which allow the 'wall street crooks' to invest your money in whatever they so desire.

[randydrivesabus]

So it's OK to throw your own hard-earned money into the Wall Street Money Incinerator as long as you can toss in your boss's hard-earned money too?
well if you read what I posted I did ask what the investment choices are and if you read my previous post you would see that I recommend diversity. 401K's don't always require that you invest in equities...some offer cd's and other investments that are more secure than stocks and bonds. And since inflation seems to be non-existent these days then the retort that cd's don't keep pace with inflation has no basis in fact. For someone who is still young the power of compounding interest can be very effective. But I of course don't know what investment choices are available in this case.

[George Fergusson]

well if you read what I posted I did ask what the investment choices are and if you read my previous post you would see that I recommend diversity.

I'm not picking on you personally RDB, I'm just lobbing grenades in your general direction. You should probably factor in my perspective which is that the stock market is going to drop the better part of 90% before it's done if it doesn't go all the way to ZERO which I see as a distinct if somewhat distant possibility. I've been saying all along over in the World Wide Stock Market Crash thread that I see the DOW going below 3000. That would be an 80% drop from it's high of about 14,000 about a year ago.

I also see us at the very beginning of what will turn out to be a long, deep, and wide depression that will make the 1930s look like a cake walk if only because today we have ~330 million people in this country as opposed to ~125 million back in 1933; because today we're a service-oriented economy with millions of people that produce nothing who are packed into relatively small widely separated population centers whereas back in the 1930s we were still largely an agricultural country, and more spread out.

So. Perhaps you can see why I'm kinda down on 401Ks at this time and up on paying off debt. I'm not even sure the market is going to survive in anything like it's present form so money put into a 401K today may well never be seen again, or certainly not for a very very long time.

I'm not trying to convince you I'm right, I'm only trying to let you know where I'm coming from.

[iddee]

You wanted change, now it sounds like you think you will get it. There should be a 52% happiness poll in the US today.

Don't worry, George, it will start getting better in 4 years. :thumbsup: ;)

[randydrivesabus]

I just don't like passing up free benefits George....know what I mean? Because those benefits are already figured into the compensation package the employee receives anyway. If you don't take them its not like you get more salary instead.
I agree that most parts of the country have not yet realized the affects of the failed economy and there's still a long way to go down.

[George Fergusson]

You wanted change, now it sounds like you think you will get it. There should be a 52% happiness poll in the US today.

I'm all for change... but I didn't vote for Obama's Change.

Don't worry, George, it will start getting better in 4 years. :thumbsup: ;)

One of the more realistic guestimates out there.

[iddee]

>>>>I agree that most parts of the country have not yet realized the affects of the failed economy and there's still a long way to go down.<<<<



I agree that most parts of the country have not yet realized the affects of the failed election and there's still a long way to go down.

Hey, Randy, you were only one word off in your post. Congrats!

[nursebee]

We all need that guy/gal with only an 8% loss this year to chime in with his knowledge so we can preserve out money.

I'd put all I can into retirement. If things do not get better it will not matter and if they do you will be better off.

I chuckled at many of the responses.

[Hobie]

Quote:
Originally Posted by Hobie:
Plus I think, if you can afford to do it, now is the time to buy, albeit wisely.

Is that what you're doing? If so, how is it working out for you?


This is what I would be doing, but I can't afford it. Too busy looking for a job and keeping up with the bills while watching my unemployment run out.

[Derek]

[QUOTE=George Fergusson;370438]I can't tell from your response what your debt load is but I assume since you mentioned them that you owe on your house and 2 cars, as well as the wife :) Your investment in a piece of land may well be the best investment you got, possibly second only to your wife. We are entering a period of frugality. If I were in your position, I'd be paying down my debt and not putting money into a 401K at this time. Just wanted you to get a different opinion on this :)

I am not sure what you mean by debt load. I listed what I have debt on.

Basiclly. I am/ Or trying to do is paying the debt off on my land, so when/if I do build a house the land will be free of debt. Along with trying to save some too.

Thanks for your help George. Means alot. Really

[MapMan]

So if we are right, buying stock is best.
If you are right, it is all mute.
I think it is a win or break even bet that the market will recover.

Is it mute or moot? :scratch: Is "it" unable to speak. Or, are you trying to say "it" as an adjective, such as a moot point? :scratch:

MM

[MapMan]

I am not sure what you mean by debt load. I listed what I have debt on.



George is asking what your amount of gross income to debt is, as a ratio or percentage. For example, if you earn $4000/month, and your monthly debt such as credit cards, bills, car payments, mortgage is $2000/month, your debt load is $2000/$4000 = 50%. ;)

MM

[MapMan]

Because those benefits are already figured into the compensation package the employee receives anyway. If you don't take them its not like you get more salary instead.

Of course, you are speaking in general terms here. For example, if you are offered health care benefits, and your spouse already has you enrolled in his/her less expensive, comparable plan at her place of employment, why not use this as a negotiating tool to receive more compensation at hire, or even at a performance/salary review? If the firm doesn't need to enroll you in their plan, they save money, and you should be able to negotiate higher pay.

MM

[iddee]

>>>>Is it mute or moot? Is "it" unable to speak. Or, are you trying to say "it" as an adjective, such as a moot point? <<<<

Yep, my mistake. OH! Well, I'm over 60 y/o, so I guess it's time I made one. :sleep: :sleep:

[magnet-man]

ETF "Exchange-traded fund" can be an unmanaged index fund or a limited managed fund.

I personally like index funds because they are not managed and thus have lower management fees. Index funds will always return a bit less than the index they are tracking because of the fees but it is a small amount.

If you look at a managed fund very few of them out perform the market for any length of time because of the high fee structure. Sure you see funds touting that they have out performed such and such index, but you only hear about a fund that does is for a short period. Now if you look at mutual fund company comparison of their funds and the returns, look at how many funds are younger than 5 years. This is because funds that don't performed get killed and converted to new funds, so that mutual fund company gets to purge it's history of poorly performing funds.

If you are holding your mutual fund outside of a tax free IRA, you can get capital gain income with out selling any of the fund. if the fund sells stock or gets capital gain dividends from its holdings those gains get passed on to you and you pay the tax. An index fund does not throw off those capital gains so you are not paying taxes until you sell the fund.

Stay away from universal or whole life insurance as an investment vehicle. They are a lousy return on investment. You are much better with a term life policy and putting the difference into the stock market. I used to work for a CPA firm that was one of the first that started to sell investments. Real conflict of interest if you ask me, but is legal now. You should see the literature the insurance companies put out aimed at the agents to sell Universal or whole life over other investments. It is all about big commissions on the front end and a small stream in later years.

[dragonfly]

Yep, my mistake. OH! Well, I'm over 60 y/o, so I guess it's time I made one. :sleep: :sleep:

It's about darn time.;)

[iddee]

Well, to be truthful, DF, I thought I made one a few years ago, but I was wrong. :shhhh: :D

[dragonfly]

Well, to be truthful, DF, I thought I made one a few years ago, but I was wrong.

:D :D
Welcome to the human race.:)

[Scrapfe]

25 Years. I will be 57. If I keep buying now. That might turn out to be a nice return.

Derek, I would advise you to buy stock in ink and paper producers.
With all the money the feds are printing to fund the bailout, stock in ink & paper companies has got to takeoff. :D

[George Fergusson]

George is asking what your amount of gross income to debt is, as a ratio or percentage.

Correct, though the actual numbers aren't any of my business. It might help Derek to think about his debt in those terms, and what to do with his hard earned money. I include property taxes and insurance in my debt calculations. Property taxes are not the same thing as a loan, but stop paying them and see what happens. Likewise, drop your insurance coverage and you'll get a call from the bank.

[Gene Weitzel]

We all need that guy/gal with only an 8% loss this year to chime in with his knowledge so we can preserve out money.

I'd put all I can into retirement. If things do not get better it will not matter and if they do you will be better off.

I chuckled at many of the responses.

I think I was the guy to whom you are referring. I don't have much knowledge to impart, call it what you like, but I think it was just dumb luck (or maybe a premonition). All I can say is that I don't plan on moving any funds back into equities for the foreseeable future. In fact, I have been considering pulling it all out and stuffing it in my mattress. :)

[Hobie]

In fact, I have been considering pulling it all out and stuffing it in my mattress. :)

Watch out for mice!

[Gene Weitzel]

Watch out for mice!

That's why I have cats!

[sierrabees]

My personal approach to this mess is: I believe that until the price of a average home reaches the point where a familly with an average wage can buy it with interest rates between 7 and 10 percent on a 30 year fixed mortgage, and still spend no more that 1/3 of their gross income on mortgage + insurance + property tax, we are still in trouble. We have a long way to go. The housing bubble started this mess, creating a false sense of prosperity that led to the bubbles in finance and stocks. The government and Fed can do what they want with the business bubbles but they are wasting their time and our money until the foundation which is real estate is leveled out.

[George Fergusson]

My personal approach to this mess is: I believe that until the price of a average home reaches the point where a familly with an average wage can buy it with interest rates between 7 and 10 percent on a 30 year fixed mortgage, and still spend no more that 1/3 of their gross income on mortgage + insurance + property tax, we are still in trouble.

I agree, though 7-10 percent interest on 30 year loans is usury.

All the efforts of our government and the governments of other countries around the world are all aimed at restoring and maintaining a corrupt and failing system, which explains why it continues to collapse despite their efforts.

I say good riddance.

[Gene Weitzel]

...... The housing bubble started this mess, creating a false sense of prosperity that led to the bubbles in finance and stocks. .......

Actually I believe it started long before that with widespread financing of negative equity in auto loans (in order to support the unsustainable pricing caused by labor and executive excesses in the auto industry), the allowing of credit card companies to charge fantastically usury rates (up to 30%). Then some "yuppie up and comer" would peruse all the customer histories, even solid credit worthy individuals and look for any excuse to jack the rate up to the max. The madness then spread to the housing market in the form of creative ARM's and other mortgages where in some cases part of the interest itself was deferred so that the balance actually increased monthly, all in order to support inflated home prices and artificially make them affordable. What's even more unbelievable is that the finance companies could not be satisfied with getting these usury rates, so they cooked up ways to securitize them, get those securities rated as AAA and then sell them to investors in order to cash out most of the interest up front so they could rip us all off with exorbitant bonuses. The speculative run up of oil prices was the catalyst for the fall. When it was a choice between servicing loans and credit card accounts with no hope of paying them off (because of the usury rates and "creative" financing) and getting to work or heating the house, people had little choice but to start defaulting.

Whats even more distressing is that a large percentage of the people in the country actually fell for this scam of "you can live like the rich and famous" by using credit, never stopping to think (or maybe not caring) that some day the bill would come due.

[nursebee]

1. Wall Street pros got this stuff all wrong. Why listen to pros?
2. If pros can't get it right why listen to others?
3. Read books on the subject and make your mind up. There is no single correct answer.
4. Spend less than you make.
5. Preserve your capital.

I'd start with this book by Jane Bryant Quinn 2009 Making the Most of Your Money – Completely Revised (3rd edition)