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Does 401K really end giving much more investment returns compared to 5% CD? Looking the stock market right now it doesn't seem good.
I am 23 year old right and everyone talks about going long. However, I don't see any guarantees that stock will go up. What will keep stock markets from keeping going down for next 40 years instead of going up? Also, what stops people from losing money when they are close to retirement if the economy collapses and the DOW goes down to 0 (zero)? Even bonds are loosing money these days.
These probably some extreme fears. But unlike CDs their is no guarantee or insurance if anything goes completely wrong.
The stock market is and has been a gamble. Spreading the risk around, does not change the basic fact that it is a gamble. There are no guarantees.
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Originally Posted by unseengundam
Does 401K really end giving much more investment returns compared to 5% CD? Looking the stock market right now it doesn't seem good.
Yeah, and your point is?
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... I am 23 year old right and everyone talks about going long. However, I don't see any guarantees that stock will go up.
True.
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... What will keep stock markets from keeping going down for next 40 years instead of going up? Also, what stops people from losing money when they are close to retirement if the economy collapses and the DOW goes down to 0 (zero)? Even bonds are loosing money these days.
The closest thing to a guarantee, is history.
In history, eventually after the Depression, the surviving corporations built up again.
How far down will this recession go?
How long will it last?
Which companies will survive?
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... These probably some extreme fears. But unlike CDs their is no guarantee or insurance if anything goes completely wrong.
CDs are only 'guaranteed' by FDIC.
There is no guarantee that the funds will be replaced at a 1 to 1 ratio. It all depends on the level of FDIC funding, which is currently low.
If only one or two banks fold at a time, then perhaps those funds may be replaced with matching funds from FDIC. So long as FDIC is funded.
However if dozens of banks go down at the same time, then FDIC will only be able to pay-out at a lesser ratio.
Maybe your CDs will recover at a 5cents per dollar ratio.
Maybe?
Or you can go to a roulette wheel and put all your money on red 12.
Wow, forest beekeeper, you sound even more pessimistic than me about the stock market (401K) and CDs too. Like I mentioned 401k doesn't look too safe to me, but I can understand when you say CDs aren't that safe either. Right now, in moderate problem, looks like CD/Bank are holding out while stock are still losing. What I really was trying to figure out where to put money in for retirement! Still not sure where put my extra money into...
BTW, forest beekeeper could you please tell me where you are putting money for retirement? (I am assuming you saving up somehow). Thanks.
I have some money in a 401K. It's in a core stable fund right now and I made 4% this year with no loss of principal.
I also have money in credit unions in CD and MM.
The yields are low but that's the safest thing going these days. I will jump back into the stock market sometime in the future. But for right now my mantra is "preservation of capital".
There's nothing wrong with sitting on the sidelines in a bear market. "You won't keep up with inflation" folks say but when you LOSE your capital that saying just doesn't hold water.
Wow, forest beekeeper, you sound even more pessimistic than me about the stock market (401K) and CDs too. Like I mentioned 401k doesn't look too safe to me, but I can understand when you say CDs aren't that safe either. Right now, in moderate problem, looks like CD/Bank are holding out while stock are still losing. What I really was trying to figure out where to put money in for retirement! Still not sure where put my extra money into...
BTW, forest beekeeper could you please tell me where you are putting money for retirement? (I am assuming you saving up somehow). Thanks.
Both sets of my grandparents lost everything they had when their banks went under. They ended up building houses and renting out those houses. Which served them far better than any other form of investment vehicle.
My parents have been very hesitant to put money into backs, and they have experienced banks going under. They have also been very hesitant to invest in the stock market, and when they have invested in stocks, they have lost money. Now they have also bought duplex and triplex residential rental properties, and when they have; it has been their most faithful income producers.
I worked for the Government for 20 years and I got their pension. My pension kicked in when I was 42. So I retired at that time.
During my working career, I collected apartment buildings, as my primary investment vehicle.
My career required that I move around a lot. Every 3 years or so, I had to relocate my family to a new job location. I bought one property at each location.
Zero money down, owner-occupied, with 3 or more tenants to cover all expenses.
They each built equity, and on paper they were each a huge loss. They sheltered my income from taxes. I was able to maintain myself tax exempt.
I made principle-only payments onto our property mortgages, and we realized about 16% on our investment each year on average. [not including any changes in market values]
When I retired, I sold all but one property. I used the cash to buy a farm.
Today I have my pension income, one residential rental income stream, my Dw works part time, and we bought a farm [so we have a small farm income].
I had friends who lost everything when Enron went under.
... The yields are low but that's the safest thing going these days. I will jump back into the stock market sometime in the future. But for right now my mantra is "preservation of capital".
I disagree.
Multi-Family-Residences [MFR] are still working well.
So much so that we have been lured into looking at a few near where we retired to. I really had not planned on buying any more, but with this market it is hard not to.
The returns can be much higher but the stock market is very risky so, you've got to play the game. Basically when everybody says sell ... buy and when everybody says buy ... sell.
I got out last year before the crash ... now I'm back in. I figure the market will bounce back and forth between 8 to 9,000 for awhile then it will steadily start to climb.
When everybody starts debating (and denying) that a recession is coming ... that's the time to sell. When everybody says the sky is falling and the world is coming to an end ... that's the time to buy.
Although it's usually best to wait until after October to make any major decisions unless, of course, you're selling since October is traditionally the big market crash month ... and this year has been no exception.
If you're buying wait until after October. If you're selling definitely sell before October.
There are no guarantees with much of anyhting but CD's are pretty safe.Unless you have a matching employer;you might want to save the money in something like that if you have a savings to get emergency cash.
Does 401K really end giving much more investment returns compared to 5% CD? Looking the stock market right now it doesn't seem good.
I am 23 year old right and everyone talks about going long. However, I don't see any guarantees that stock will go up. What will keep stock markets from keeping going down for next 40 years instead of going up? Also, what stops people from losing money when they are close to retirement if the economy collapses and the DOW goes down to 0 (zero)? Even bonds are loosing money these days.
These probably some extreme fears. But unlike CDs their is no guarantee or insurance if anything goes completely wrong.
If you invest in bond funds then likely you will get at least the same return because you still get the tax deferred savings in the 401k you would have to make up if just using CD's, and bond funds are what you are supposed to move the money to later in life. You might wish to look at this closely, because the 401k money is taken out of your taxable income (lowering your taxes), plus you might have a good employer match.
Basically, investment for retirement generally says to look at higher earning but riskier investments early on, then lower earning, safe investments as you approach retirement.
Although those investments don't have to be in the stock market.
Here is a long term Dow Jones chart. The main trend is up, but still it can plateau or even go down. Dividends still accumulate based on stock holdings though. http://www.minyanville.com/assets/ca...ow100YrsMV.jpg
I agree that real estate is a good investment too. You need to be paying attention though, as each particular market can make a huge impact on what you can do. You can start by renting out a room, or buying a property that can be split to separate residences is a good start. Whatever allows you to pay for equity with someone else's money.
Here's another post, if I were you, I'd look at what the employer is offering for 401k (company match and types of fund available). Then after doing so, I would try to invest in both 401k and real estate. Since the market is down you are able to buy at a discount. Many stocks are 30-40% down, so if you went to a store and they were selling everything for 30-40% you'd probably buy something. Pure bond funds would be the safest of course. You are young, so being able to buy at a discount now is a good situation.
The real estate market is not quite at the bottom yet, depending on location. But again, the opportunity for investing is much better now than a few years ago.
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