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Tue Jun 19, 2012, 01:07 PM

I honestly don't know what to tell him.

My son is considering putting all of his 401k contributions and slight employer matching into money market funds based on the recent ups and downs since 2008 plus belief nothing has changed in banking plus the Europe situation and a general mistrust in investors and the fees charged for mandatory quarterly account rebalancing when selecting one of their 'Target Funds' (a mix of other funds based on when you think you will want to retire).

He believes the stock market will never be the same as it has been historically and because he believes in global warming, stagnation of high paying jobs, wealth inequality and other future problems he says he would be content to accumulate just what he saves and consider the employer contribution as the 'free money' that increases his savings' value.

At this point in our country's history and the global situations --- I honestly don't know what to tell him.

Do you believe in eventual steady future growth or has the stock market, as we've known it, essentially done?

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Arrow 24 replies Author Time Post
Reply I honestly don't know what to tell him. (Original post)
cyberpj Jun 2012 OP
Cary Jun 2012 #1
cyberpj Jun 2012 #6
hay rick Jun 2012 #12
cyberpj Jun 2012 #13
eridani Jun 2012 #10
cyberpj Jun 2012 #14
eridani Jun 2012 #16
wordpix Jun 2012 #19
Blanks Jun 2012 #2
cyberpj Jun 2012 #7
wordpix Jun 2012 #20
bemildred Jun 2012 #3
cyberpj Jun 2012 #8
jtuck004 Jun 2012 #4
cyberpj Jun 2012 #5
jtuck004 Jun 2012 #9
wordpix Jun 2012 #21
westerebus Jun 2012 #11
cyberpj Jun 2012 #15
progree Jun 2012 #17
truedelphi Jun 2012 #18
wordpix Jun 2012 #22
Sushi_lover Jun 2012 #23
cyberpj Jun 2012 #24

Response to cyberpj (Original post)

Tue Jun 19, 2012, 01:11 PM

1. Future shock

I suppose that one day the prophecies of the doomers and gloomers will come true but if that happens what makes anyone think they can be anything but screwed?

Your son should be diversified with a healthy portion of equities.

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Response to Cary (Reply #1)

Tue Jun 19, 2012, 07:14 PM

6. That's his Father's advice as well.

But he (like all children I suppose) doesn't think his Father can judge today's circumstances based on his Father's own life experiences; says things are too different today.

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Response to cyberpj (Reply #6)

Wed Jun 20, 2012, 10:52 AM

12. I agree with your son.

Equities during a good portion of our lifetime benefited from healthy growth in the economy. The growth was shared more equitably than it is now with the result that demand increased, spurring further investment and growth. That virtuous cycle now seems quaint. The recent Fed report detailing the decline in median incomes and household net worth is probably a better guide to the economy's current direction than the generational experience of the baby boomers.

I don't think the assumption of a "steady growth" in equities is a reasonable expectation or the basis for a prudent retirement strategy at this time. Kudos to your son for 1) having a job that still gets an employer contribution to his 401K and 2) paying attention to what's going on around him.

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Response to hay rick (Reply #12)

Wed Jun 20, 2012, 12:53 PM

13. Perpetual Growth. I believe it was an article posted in this forum recently.

And to that article I posted the following response:

Been sayin' this for years. It seems SO obvious. As one who worked for a Fortune 500 Corp in 1970s I've often repeated my experience of working 'back in the time' when it was acceptable for companies to 'have a bad quarter' or two without the stock market reacting. People remained invested based on the company's history and outlook projections, etc.

It just seems like in the 1980's something radical changed and all of a sudden it became necessary that every quarter show an increase in revenue. Some of that started with corporate raiders that came in, took over, reduced staff and outsourced over time --collected their big pay and left --and some of it grew along with day traders.

But the basic assumption that any company can have perpetual growth is a fairy tale so obvious as to make anyone with half a brain laugh out loud.

And yet it has persisted for decades.

It's also why big companies just kept on buying up smaller ones then cutting employees and expenses and then doing it over and over and over until we have all the monopolies again!


He IS fortunate to have a good job (for now) w/at least some 401k matching but due to a politically active and aware Mom from the '60's who is still involved and informed he also knows it could disappear at any moment in these times. My heart breaks for him and his generation --even moreso for my grandson.

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Response to Cary (Reply #1)

Wed Jun 20, 2012, 05:09 AM

10. Should have added equities in 2008. For the short term--

--buying high and selling low is never a good idea. Of course being young, he can affort to look farther out, but buying at the bottom is always better IMO.

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Response to eridani (Reply #10)

Wed Jun 20, 2012, 01:00 PM

14. Didn't have the job, or the 401k plan, in 2008. He has worked construction for years with

practically no benefits of any worth.

Only was able to find work that came and went on jobs since 2008 crash.

Now is in his 40s and has a job as a heavy equipment operator at the local refinery (sorry, but it's work) with real benefits and this 401k plan.

Perhaps that helps explain his reluctance to 'invest' instead of simply saving. He doesn't trust much these days.

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Response to cyberpj (Reply #14)

Wed Jun 20, 2012, 07:30 PM

16. In that case, I'd say that building up a savings cushion should come first

Buying at the bottom of the market rather than the top is something he can wait a couple of years for, IMO.

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Response to eridani (Reply #10)

Sun Jun 24, 2012, 10:22 PM

19. but you never know where the bottom OR the top is - I recall thinking Apple was too high at $15

Yeah that was one of the stupidest decisions I've ever made, along with not investing in Google.

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Response to cyberpj (Original post)

Tue Jun 19, 2012, 01:45 PM

2. The solution to all of the world financial problems

Could be solved if all of the retirement investment funds were diverted away from wherever they are going now and invested in successful green energy expansion and local farming operations.

If you think about it; this is the only leverage working people have against corporations. Unions, public employees, 401k plans, IRAs a whole bunch of money that people who don't know anything about investing; turn over to 'chuck' for the latest ponzi scheme.

There should be a law requiring a completely transparent local investment option. Did I mention that the investments should be required to be local. Let's see the bastards on wall street extract $100 million bonuses out of local investments in small communities.

I don't know what you should tell your son, but I'm gardening and raising chickens as my only plan for retirement. The last time the markets crashed; not a single chicken died.

It doesn't make sense that people send all of this money to these funds for all that time, and then when they need it to eat , they don't have the money to buy food, but you can read in the news about huge executive bonuses. You don't eat money; there is no better time than the present to learn how to grow food.

I suppose to a normal person I sound bat shit crazy, but its surprising how much food (including chickens and eggs) can be grown in a small space. The funny thing is that most of our parents and grandparents did it as a way of life.

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Response to Blanks (Reply #2)

Tue Jun 19, 2012, 07:19 PM

7. I love your input.

And wish I lived in a community where I COULD raise chickens. As for gardening --I'm a late bloomer (pun intended). Lived in apartments all my life and have a very small yard at this time.

Local investing makes so much sense it seems absurd that people continue to support national conglomerates because of price. Buy less/support local businesses is so much smarter. So many of us have much more stuff than we need!

When I was little I grew up in a 3 generation home and loved it. Once everyone started 'doing well' and getting all their own stuff and living separate -- well, I think that's when we lost our sense of community in general.

Seems financial times may well force us back that way.

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Response to Blanks (Reply #2)

Sun Jun 24, 2012, 10:35 PM

20. I'm with you and was a back-to-the-land person in 1970s-80s but

I needed some "real money" due to circumstances, so I've been working, bought a condo (the only affordable house ownership in my area),now pay farmers for my meals, and I keep a small garden.

I have been going back and forth for years, agreeing with the son who's the subject of this thread, but also swing toward the sentiment that if you invest in small companies doing good things, you can grow your money and help people and the environment, too.

It's a conundrum and I just rebalanced my portfolio, but I'm hanging onto some cash - I may need to go back to the chickens, too.

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Response to cyberpj (Original post)

Tue Jun 19, 2012, 03:39 PM

3. Nobody really knows.

I think his plans, while possibly not optimum in terms of return, seem pretty optimum right now in terms of secrurity and preservation of capital. Interest rates are pretty pathetic right now, but if they ever do go up, money markets will be looking great.

And it never hurts to have some cash you can lay your hands on in a pinch.

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Response to bemildred (Reply #3)

Tue Jun 19, 2012, 07:19 PM

8. Thanks for your thoughts. nt

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Response to cyberpj (Original post)

Tue Jun 19, 2012, 06:48 PM

4. Ask him what the money markets are invested in. Banking stocks, Europe...eek!


I can't help but think money should be used to buy hard assets, as cheaply as possible, like commercial real estate, or perhaps start a business that focuses on a local market, either in small agriculture, manufacturing, or energy. Maybe a little bio-diesel operation. Certainly buy a home. Leverage it with loans, but don't go crazy, and make sure the income is as stable as one can get.

If he can just get by, demographics will help him out. And if we do see inflation, which probably won't be sustained at very high levels for long, he can pay it off with cheaper money.

That advice is probably worth what you paid for it, btw.





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Response to jtuck004 (Reply #4)

Tue Jun 19, 2012, 07:11 PM

5. re: "That advice is probably worth what you paid for it, btw." ...

That's ok. It's why I hang out here and subscribe to this group and why I came here to throw it out there... It's good to get all sorts of input.

As with most children, they do what they want to do but getting some diverse information can never hurt.

He's becoming so fearful (corporate media working on him no matter what I try to do) I suspect he'd simply put it under his mattress if he thought his home was sufficiently safe but at least he does see the good in getting whatever employer match he can by using the 401k.

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Response to cyberpj (Reply #5)

Tue Jun 19, 2012, 08:14 PM

9. "the good in getting whatever employer match " Absolutely.


And getting it out, you take a tax hit. In my experience people rarely look at the fees they charge, which can amount to much more than they would give up in taxes to do something more profitable over the long term.

I think I am glad I am not younger. I see a lot of opportunity in their future, especially with local business and cooperatives, but they are surrounded by a world in which people seem insistent on living in the past, which is really gonna be a drag.

Wish him luck for me.

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Response to cyberpj (Reply #5)

Sun Jun 24, 2012, 10:37 PM

21. even with low inflation, though, money under the mattress won't be worth the same in 10 yrs.

That's why you've got to put it to work. Unfortunately, there is risk involved.

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Response to cyberpj (Original post)

Wed Jun 20, 2012, 10:43 AM

11. For what it's worth.

If he is not locked into "target funds" in the company's 401k, then he could split his contributions any way he see's fit. What it looks like, from this side of the computer screen, is a 401k that functions more like purchasing an annunity in the present tense, commissions and fees all paid up front, than a 401k investment vehicle with low cost funds. I don't know how its structured, but if there's a re-balancing fee every quarter and he feels he is being shorted by the cost, I'd say the case is he's buying an expensive 401k option when there may be less expensive ways to go.

If the cost is offset by the company's contribution, and the target fund is a balanced fund, stocks-bonds-financial, the question is why would he be invested there if there are other choices that are cheaper cost wise with returns that reflect the market they invest in. Passive mutual funds that follow the general market are normally available in IRA's.

If that's not the case in his company's 401k structure, and he's worried he is losing his base capital as the returns are eaten by fees for a managed fund, he wouldn't be any safer in money markets if the underlying market goes negative.

As with any advice, buyer beware. I don't work for the financial industry. I'm solidly a 99%er with modest means.



* i need a proof reader or more coffee

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Response to westerebus (Reply #11)

Wed Jun 20, 2012, 01:09 PM

15. Thanks. Your information is appreciated.

You are SO right. I was lucky enough to have an actual company pension (that, thank the heavens, is still properly funded) so had little knowledge about 401k plans.

What surprised me most was how little people who actually have them know about them. Not even about taxes due and 10% early withdrawal fees! No one can be bothered to read the paperwork -- they just go to the announcement meeting, sign where they're told and trust it will all work out for them!

A suspicious person would think that was the plan all along, wouldn't they? Or maybe just someone who has always mistrusted the financial industry? Read: me.

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Response to cyberpj (Original post)

Sun Jun 24, 2012, 12:16 AM

17. The Death Of Equities (Business Week 8/13/79 cover story), 3 yrs b4 the great 18 year bull mkt began

4 things that I consider when I'm getting gloomy about stocks:

1. The U.S. stock market has a better than 9% return since 1926 or somesuch. Here is a link to the Vanguard S&P 500 Index Fund, for example
http://www.thestreet.com/quote/VFINX.html
Since its inception in August 31, 1976, it is up 10.67% annualized average, meaning that $10,000 invested back then would be worth $10,000 X 1.1067^35.8 = $376,940 (From 8/1/1976 to 6/22/2012 is about 35.8 years).

I would urge him to put (at least) 20% of his money in index equity funds like this, just in case he is wrong about money market funds (which historically has a horrible return compared to equities and bonds). AND LEAVE IT THERE NO MATTER WHAT, THIS IS THE MOST IMPORTANT ADVICE OF ALL. Don't try to time the market, very few have succeeded at that. Ignore the advice you are getting to wait until the market falls and buy in a few years. (Google "Dalbar studies investor returns" for studies about how most investors do much more poorly than the funds they invest in because of their tendency to buy equities near stock market peaks and to sell near the bottom -- I particularly remember one study in like 2005 or so over the past 25 years -- where U.S. equity mutual funds averaged something like a 13+ % average annual return, but the investors in them only averaged 4+ %. ).

2. Read a bit of "The Death Of Equities" - Business Week's August 13, 1979 cover story. Only 3 years later the U.S. stock market began its ascent from a DOW of 777 in the greatest bull market in history. It is now at 12,641. (and looking at index values considerably understates the total return over such a long period because it leaves out dividends, which if I recall correctly, account for something like 2/3 of the total return of S&P 500 stocks since 1926).

http://www.businessweek.com/investor/content/mar2009/pi20090310_263462.htm

3. I was impressed by a handout in a financial seminar back in 1982 or so about all the reasons given over the past 20 years of why stocks will be a bad investment - (just like today) we're running out of food and oil and all that. I wish I had the handout (I'm sure its somewhere), I'd type it in.

4. The S&P 500 dividend yield (currently about 1.7%) is better than money market funds. I'd rather have a return that is better than money market funds plus the historically great probability of substantial capital gains. Something like Vanguard Dividend Growth (VDIGX) might be more to his liking.

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Response to cyberpj (Original post)

Sun Jun 24, 2012, 02:35 PM

18. I think a diversified position should include real estate.

Right now, for instance, property is to be had for a fraction of its worth here in Lake County Calif.

Now I don't think that RE is going to end up in another bubble.

What I do think will happen is that over time, the traditional "good value" buys regarding RE. will pay off, and pay off well.

I live inside a community which provides one of the few Big Recreational Lake areas in the sate of California. It is a 2.5 hour drive from San Francisco.

Given that San Francisco area will always have plenty of rich people, it stands to reason that like similar spots in Europe, this area will continue to attract people who want second homes to house their boats and paraphernalia over the winter and their boats and jet skis over the summer.

So I'm not just saying to run out and buy a lot of property at depressed prices in a place like Stockton Calif. But in a traditional recreational area, there is value that will be forth coming.

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Response to truedelphi (Reply #18)

Sun Jun 24, 2012, 10:46 PM

22. you can also buy RE equities and REITs

My investment co. has a RE equities fund; the investor is buying shares in actual real estate owned, and as long as there are people to lease, rent and buy the properties there are some profits.

Yes, there are RE downturns and you can't always be assured all the properties will be fully leased/rented or sold for a profit. Yes, there is risk, but this is a way to own real estate without the hassle of renters and fixing toilets!

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Response to cyberpj (Original post)

Tue Jun 26, 2012, 11:02 AM

23. The "30 year" mantra

The usual quote is "there is no 30 year period where equities were outperformed by any other investment".

So if your son has 30 years to go, equities seem like a good bet.

If he has fewer, I share his concern. I look at our current cycle where the pendulum has swung to very poor market regulation and enforcement. The crooks are stealing and all of Roosevelt's market reforms have been demolished. The only regulation is on the small potatoes advisors, not on the crooks at the top like JPMorgan and MF Global.

So I don't have an answer, but your son has a legit argument if he's expects to retire in under 30 years.

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Response to Sushi_lover (Reply #23)

Thu Jun 28, 2012, 11:30 AM

24. Born in 1971 so for him it will be 26 more years according to SS online

Full Retirement Age: If You Were Born In 1960 Or Later:
http://www.socialsecurity.gov/retirement/1960.html

Of course, who knows what the government can do to that timeline in the next 26 years claiming that Social Security is going to be bankrupt.

I understand what you've said but neither he nor I believe that the next 30 years will be anything like the last 30 or any period of 30 before. Global politics plus climate change plus population growth plus Corporate control will make his future very different than mine or my parents'.

Thanks for the input.

At this point he's decided to go 50/50 with savings and investments. BTW, his particular 401k plan has limited fund choices, not a single indexed fund!

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