Will bail out effect my 401K?

[Goldy1]

My roth and 401K is a HUGE HUGE asset to me which went down about 40% or so the past year or so. No pension coming to me. WE are in our 30's but always dutifully contributed a lot.

I read the newspapers in the morning to get the highlights, but I chose to NOT bother myself with watching all the speakers and cnn all day etc. I enjoy my life and each morning I rise and say "ok what's the gloom today in the headlines?" and I move on from there.

I just hope if this bailout does not pass my investments don't crash again. I am neutral on the bailout. I see pros and cons. It is over my head. I know it would be a good time to buy then when stocks are low, but I am afraid to take money out of liquid assets to invest b/c I want my emergency stock funded (actually overfunded due to job conditions for me)

[Broken Arrow]

Hmm? So, you're worried about the news of bailouts sending the market down? I wouldn't worry about it.

If anything, news of Obama's second stimulus package is actually sending the markets up lately. And that part is pretty much guaranteed. Even the automaker bailout program seems like it could go through.

However, I WOULD worry about having a proper asset allocation exposing you to an improper level of risk.

[Goldy1]

well worried is a strong word since I can't control anything lol, but wondering. I mean after losing 40% I would hate to lose another 40%. My allocation includes I bonds and my roth and 401K are in mutual funds with retirement target dates. I used to have fidelity 4 in 1 index in my roth last year but switched that to the target for retirement date.
I just remember the market going south on news that GM stock MIGHT in the future go to worth nothing.
I figure if the automakers do not get a bailout and one goes bankrupt it would ripple into all sectors.

[Goldy1]

ps
Months ago before any of this stuff went down with the economy. I am talking before stuff was going on with the financial bail out and credit crisis, I realized my husband's 401K was about 100% stocks. He was clueless and the sum in there was substantial. I had been reading book son finances and logging into my roth but neve rlooke dinto his stuff. I put into about 75 stocks, and 25 bond type stuff by picking a returement date fund. I am so glad I realized that in the nick of time.

[disneysteve]

WE are in our 30's

I think this is really the answer to your question. You've got 30 years before retirement. What happens today or tomorrow or next week or next month won't matter 30 years from now. What will matter is that you continued to dollar-cost-average into your retirement accounts, buying up more shares way back in 2008 and 2009 when the market plummeted and when the market eventually recovered, those shares you bought at the bottom grew tremendously and contributed to you having a very nice nest egg.

[Goldy1]

yes true, very good point. However, just say your account went down 40% and you kept buying shares at a low price which evenually gained, you wonder if that would make up for the loss of the shares you bought at a higher price. You could regain it all too and then take another big dip if economy goes bad before retirement. I guess that is why you grow more conservative!

[disneysteve]

yes true, very good point. However, just say your account went down 40% and you kept buying shares at a low price which evenually gained, you wonder if that would make up for the loss of the shares you bought at a higher price. You could regain it all too and then take another big dip if economy goes bad before retirement. I guess that is why you grow more conservative!

Jim posted a calculation yesterday or the day before on another thread that applies here. Basically, his point was that by continuing to buy when the market is low, you lower your break even point.

Let's say you bought 100 shares of XYZ fund at $50/share. They drop in value to $25/share, a 50% loss. The fund, would then have to have a 100% return to get back what you've lost. If, however, when it dropped to $25/sh, you bought another 100 shares, your average cost basis is now $37.50/sh. The fund only needs to gain 50% for you to be even again.

So by buying on the way down, you lower your average cost basis for ALL of the shares you own and lower your break-even point.

[Goldy1]

ok I like the true point here of buying share to dollar cost average I suppose would be the word. I guess if I have to keep buying in the down market to break even, I just think why not keep all the money in conservative investments and get a 3% return ie cds. I know it own't keep up with inflation. Money magazine says a sure way to lose money is to keep in all in stuf flike cds and bonds only b/c you will not keep up with inflation, but at least you will not lose. I guess my solution is to be a conservative investor so I have an allocation of a modest amount of stocks.
I am still working on taking the emotional side out of my investing.

[disneysteve]

I guess if I have to keep buying in the down market to break even, I just think why not keep all the money in conservative investments and get a 3% return ie cds. I know it own't keep up with inflation.

Buy LOW - Sell HIGH.

There is no better time to be buying than in a down market. Think about it. You own shares that you bought when the price was 40% higher. You thought those shares were worth buying then. Now they are on sale for 40% off but you no longer think they are worth buying. I suspect that if they went back up to their previous level, you would again think they were worth buying, right? Doesn't make much sense. Makes a lot more sense to buy them when they're down and cheap (unless you have reason to believe they won't recover. Not everything that is cheap is a bargain.).

If this is long-term money, like for retirement 30 years from now, CDs are worthless. They lose value every year due to taxes and inflation. You won't ever reach your goals if you don't take some risk.

[ea1776]

If you are looking for capital appreciation you want stocks.
If you are looking for capital preservation you want gold or bonds.
At anything given time, you should have exposure to both. The target retirement funds are sometimes a good idea for passive investors, because they auto-adjust that trade-off as you approach retirement.

Stocks are the king of long-term investment portfolios though.
No investment will outpace stocks in the long-run, so its foolish NOT to investment in them if your retirement horizon is far away. As others have pointed out, now is the best time to buy!

If you want a more conservative stock portfolio, try investing in slow-moving, large cap, blue chip stocks (or the relevant index fund) that pay healthy dividends. There are some great companies on sale right now that are paying 5%+ dividends. That's perfect for a tax-deferred account, like a Roth or 401(k), since you won't have to pay annual gains tax on the income.

[Aaronholds]

No, I don't think there should be a bailout with the help of Bail Bond because I don't think a bailout is going to help that many folks. I'm guessing a bailout would be a program to keep people in their homes they can't afford?These people still won't be able to afford these houses. Plus many people who are in foreclosure (or will be) are people who don't want the house anymore no matter what. Many don't even live in the same state anymore. They've been transferred or whatever.

[sv2007]

My roth and 401K is a HUGE HUGE asset to me which went down about 40% or so the past year or so. No pension coming to me. WE are in our 30's but always dutifully contributed a lot.

I read the newspapers in the morning to get the highlights, but I chose to NOT bother myself with watching all the speakers and cnn all day etc. I enjoy my life and each morning I rise and say "ok what's the gloom today in the headlines?" and I move on from there.

I just hope if this bailout does not pass my investments don't crash again. I am neutral on the bailout. I see pros and cons. It is over my head. I know it would be a good time to buy then when stocks are low, but I am afraid to take money out of liquid assets to invest b/c I want my emergency stock funded (actually overfunded due to job conditions for me)

What bailout? I don't remember reading about any. Your company helping? Turkey doing something?

Anyway, 40% is a large drop; did you get a bad stock pick? 401k? which fund?

There are 2 thoughts that pop into my head just now:
1. What goes down strongly may experience a strong recovery; but
2. What goes down strongly may be a collapse of its fundamentals.

1 means to stay the course; 2 means to get out. I'm tempted to guess/take #2 given the current situation where the overall market is up. But you never know unless you take a closer look.

BTW, not reading the news probably didn't have too much of a consequence in your 401k drop; maybe your IRA (did you miss anything significant on your stock? Do a search, it'll turn up easily).

As for 401k, which fund? I'm very interested in knowing.

[sv2007]

ok, I see this post was form 2008! Haha.
Now I get the bailout.
Interesting times

[tripods68]

Dude, this post was made back in 2008! Why are you bringing it back?

[DaveInPgh]

Dude, this post was made back in 2008! Why are you bringing it back?