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Our 401K's are diversified. Does that mean we're okay? How do you put your 401K money in cash? For 529 accounts we chose the plan that best matched when our kids would be starting college. So if we changed how our 401K's are allocated we'd be selling low and buying low? It's probably better to leave it as it is I'm guessing. It's just hard to watch thousands go away. We have plenty of time to recover although it's mostly up to my husband now. My job went to China ;( and I haven't found another one yet. We have young kids so I am staying home right now anyway. I'm a scientist...pretty scary the type of jobs going overseas!
Use the statements for toilet paper is one good suggestion. At least then you will obtain some value for all the effort. We've been sold out by our greedy corrupt politicians and CEO's people. I told you Dow 7000 for 2 years in here and people laughed and laughed. Well, now it is here! The Dow will dip well into the 6000 range soon enough. Life and our economic system as we know it is OVER. 25-30% unemployement, tent camps, soup lines and mass civil unrest coming near you in 2009. I guarantee it!
The Dow will dip well into the 6000 range soon enough. Life and our economic system as we know it is OVER. 25-30% unemployement, tent camps, soup lines and mass civil unrest coming near you in 2009. I guarantee it!
Alas, I agree, if not in 2009 then 2010-2012. This was guaranteed by the $5 trillion borrowed & wasted in the last 8 years (a doubling of the national debt!), and nothing done about the festering housing bubble. So sad to watch a once-great country laid to waste by bad voting.
Re 401Ks & 529s, I haven't trusted either for a decade. The stock market has become a gigantic Ponzi scheme. People don't invest in companies so much as invest in the hopes of someone else paying more later. And 401Ks were designed to facilitate that. The proposed privatization of Social Security was also about prolonging the scheme.
The Dow stands at about 4%-even since inception in 1928. That doesn't include dividends, rare nowadays. That's the very best indication of how the Dow will perform in the future, for a long-term average. Not a great return for the now-obvious risk that the market could crash & not recover before your retirement. At 4%, it's a better deal I think to pay down a house mortgage when you have one; I was earning 4.7% tax-free risk-free that way (albeit with post-tax money).
The money I have in a 401K will stay there. I moved it from cash to stock at Dow 8000. As bad as I think things will get, it will still be hard to time the bottom in stocks, and some stocks will recover at different times than others. (Indeed, some companies do better in a depression.)
The Dow stands at about 4%-even since inception in 1928. That doesn't include dividends, rare nowadays. That's the very best indication of how the Dow will perform in the future, for a long-term average.
Not quite. 1928 was a major peak right before a major crash. If we're going to play that game, let's look at how the Dow has done since 1933 (when the bottom occurred). Since then, the Dow has averaged over 7%, and well over 10% taking dividends into account (which you have to do when looking at returns).
Of course, it's silly for me to hand-pick a bottom to start from, just as it's silly for you to start from a top. It would be more meaningful to start from a mean, which would put returns somewhere in-between.
Not quite. 1928 was a major peak right before a major crash. If we're going to play that game, let's look at how the Dow has done since 1933 (when the bottom occurred). Since then, the Dow has averaged over 7%, and well over 10% taking dividends into account (which you have to do when looking at returns).
Crashes are to be expected--we obviously haven't figured out a way to avoid them yet. Cherry-picking can only mislead. Taking the entire history of the Dow, regardless how close to a crash it started, involves no cherry-picking. Why not remove the crash at the tail end of the Dow too? Then you get, what, 20%? The Dow might really be on a path to do 6% excluding dividends over 200 years, but right now the very best indication is 4.0% excluding dividends, using only the Dow's data. This is just the Dow. Perhaps there's a reliable index out there with more history, that is still maintained, in which case such index might be a better indication of future returns. I'm not aware of such index.
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Of course, it's silly for me to hand-pick a bottom to start from, just as it's silly for you to start from a top. It would be more meaningful to start from a mean, which would put returns somewhere in-between.
The 4% figure is the mean. It's the annualized rate of return, excluding dividends, since inception.
I agree that dividends are important to keep in mind. Also important to keep in mind is that likely much of the Dow's runup since 1981 was due to massive federal borrowing, unsustainable & yet to be paid back. I would not risk the stock market myself, at times when I can make 4+% on a CD or by paying down a mortgage.
My 403b has gone down about 45%. I am overweighted in stock funds because I have an old-fashioned fixed annuity pension plan at my job (which is as stable as possible). I don't intend to tap anything for ten years, at which time I'll be a "full" Social Security age.
I've cut my pre-tax deductions to $75/week, with a vague and touching faith in dollar-cost averaging. Paying down mortgage and very low interest debt (2.9 for life) is going well. Since the 403b deductions would primarily work as tax deductions for some time, rather than wealth building, I'm increasing my charity donations. Not really for financial reasons, but more because I worry so much about these groups in these times (and it's a tax deduction).
Taking the entire history of the Dow, regardless how close to a crash it started, involves no cherry-picking.
Well, you're not really taking the entire history of the Dow in this case (the industrial average began in 1896, not 1928), and even if you were, picking ANY particular year as a starting point (whether it was the first year or not) is not the best way to measure returns, IMO. Better to use mean prices as measured by linear regression (see blue line on attached chart).
BTW, even if the Dow DID average only 4%, with dividends included that return would be more like 7% or more. And 7% is still considerably better than the return you'll get on a CD, especially when you consider compounding.
Well, you're not really taking the entire history of the Dow in this case (the industrial average began in 1896, not 1928), ...
It did? I've not seen the data precede December 1928. Checking Wikipedia, I see that you're right. The modern version--30 stocks--is what started in 1928. Before that there were 20 stocks, and other numbers.
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... and even if you were, picking ANY particular year as a starting point (whether it was the first year or not) is not the best way to measure returns, IMO. Better to use mean prices as measured by linear regression (see blue line on attached chart).
I think we're talking about the same mean, maybe just different ways to calculate it. If your mean differs from mine, mine would be better because mine is the actual return you would get, if you could invest in those stocks perfectly (no transaction costs), excluding dividends. How could that not be the most appropriate measure of past return?
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BTW, even if the Dow DID average only 4%, with dividends included that return would be more like 7% or more. And 7% is still considerably better than the return you'll get on a CD, especially when you consider compounding.
Dividends are important to consider. I don't think they average 3% anymore, esp. not now. The stock market at 7% is a better return, but a worse risk, than the CD. Performance is best measured as return divided by risk. A CD at 6% is definitely better than the stock market at 7%. The 6% is fixed and well guaranteed, whereas the 7% is past performance only and could end up being 5% in the future, or even 0% for a few decades. Given a choice between a CD at 2% or the stock market, I might choose the latter despite the risk, if only because the stock market should at least keep pace with inflation in the long run.
I think we're talking about the same mean, maybe just different ways to calculate it. If your mean differs from mine, mine would be better because mine is the actual return you would get, if you could invest in those stocks perfectly (no transaction costs), excluding dividends. How could that not be the most appropriate measure of past return?
Because yours starts from a peak rather than a "middle ground." We're trying to determine a best estimate for future returns based on past averages, therefore we want to start at an average price rather than at a peak or a valley. Linear regression draws a straight line right down the middle of the Dow's peaks and valleys throughout history, and the angle of that line gives you the best average return number. This picture explains linear regression better than I can:
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Dividends are important to consider. I don't think they average 3% anymore, esp. not now.
No, but they averaged at least that over time (probably closer to 4%). You have to include dividends when looking at past returns because they're part of the total return and they directly affect the share price.
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The stock market at 7% is a better return, but a worse risk, than the CD. Performance is best measured as return divided by risk. A CD at 6% is definitely better than the stock market at 7%. The 6% is fixed and well guaranteed, whereas the 7% is past performance only and could end up being 5% in the future, or even 0% for a few decades.
Oh, I agree with all that. Problem is, CDs are paying 2.5% right now, not 6%.
there are some very good alternatives to leaving your 401K at the mercy of the market. Mainstream media has torn what I am about to mention, apart mainly because I think there is something against insurance companies. The one thing I have learned is that insurance companies know how to make money. From the limited research I have found, it was the insurance companies that made profits during the depression era, Not because they swindled people but because they know how to protect what you have. With that in mind one the best options I have come across is a indexed annuity. Be careful of the company but when done with a very good company they provide all you are wanting at this point...
They give you protection of principle... NO management fees!
Tax deferral is a given-you get that with your 401K anyway,
You get participation in market gains but you do not get the losses.
You are going to keep it for the long haul so the surrender charges don't make a difference. Which by the way anytime you enter a contract and break it... you usually pay penalty. (look at your cell phone contract)
Now the argument I hear from the financial people is well, in the long run you will make more. Maybe so but I would rather take slow steady gains making between 2.75-8.5 over the next ten years with NO DOWNSIDE. Kind of like getting a business and getting only the profits in the good years and during the bad years I keep the same I started with.
Is it conservative?... sure it is.. but guess what... It will be there when I need it and it will grow. And if you are near the end of your career... You may not have time for the market to rebound.
I like to think of the tortoise and the hare... Seems the tortoise always wins.
So a good option for a 401K is to let it grow slow and steady with no losses and then start another one when you have a new job and be more aggressive with the new one.. Gives you a couple of buckets of money to draw from just food for thought... want more info contact me...
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This was guaranteed by the $5 trillion borrowed & wasted in the last 8 years (a doubling of the national debt!), and nothing done about the festering housing bubble. So sad to watch a once-great country laid to waste by bad voting.
