Are you guys hunkering down money wise?

[RobJ]

There are some deals out there if you wait... that being said, I have probably lost $100,000 in the past year on investments (on paper only)

The "on paper only" thing really isn't true. It is if you buy a single stock that does not pay dividends. But in a mutual fund many stocks pay dividends, some of the fund may be in cash, CD's etc. So you lose the compounding effect. That 100k you lost on paper, would double in about 9 years with about an 8% annual return. Double in 18 years at a measley 4% (using the 72 rule). So that on paper loss can really cost you something over the years.

You can even look at houses different ways....

if you own a house at 100k, and a recession hits, for 5 years it is worth 50k, then 5 years later it's back to 100k. Even steven right? probably not due to inflation.

Now if you own that house worth 100k and there was no recession, after 10 years it's worth 200k. That's about a 7% annual return, probably well over inflation.

Eddie is a smart guy here to actually cash in on his home. We sort of did this when we moved 6 years ago, a little different because we moved from one primary home to another but the new home is bigger, so I pocketed some money but not a huge windfall. But my little weekend place is worth about 8 times what I have in it over 8 years. I could easily sell it (well maybe not now, but Texas hasn't been hit as hard in this mess as the rest of the country).....buy another small piece of land, build another house and have over 100k in my pocket. Problem is I love the place, location, etc and won't sell. I get to attached to things.


Good luck,
Rob

 

[RobJ]

Care to explain that? The "deserve" part.

Here is another way to put Mikes statemend (which I believe he is 100% correct on BTW).

All the folks at Enron were investment geniuses, right up to the point when the stock was in a freefall and the company went under. I had some good friends caught in that mess. Forget the fact the officers were telling lies about the company, any novice investor should know you don't have all your 401k in one stock!!

I feel sorry for those folks, but the sixty something guy who lost all his 401k broke the #1 rule.

 

[MikePA]

All the folks at Enron were investment geniuses, right up to the point when the stock was in a freefall and the company went under. I had some good friends caught in that mess. Forget the fact the officers were telling lies about the company...

Speaking of Enron, where's the outrage about Fannie Mae and Freddie MAC and their CEOs and officers who cooked the books in order to get bonuses and whose companies caused this mess. What they did dwarfs what Enron and Worldcom did and the executives of Worldcom and Enron are in jail whereas the execs of Fannie and Freddie are consultants to a presidential campaign. Where's the threads with TBNers whining about CEO pay at Fannie Mae and Freddie Mac? The silence is deafening.

 

[LMTC]

Supposedly Fannie/Freddie had over 1.5 TRILLION (yes, with a "T") in debt back in 2006 when there was a push for more oversight, but the house committee (insert specific Rep here) ran interference. THIS link goes to a copy of a letter asserting concerns about F&F by 16 senators back in 2006. The letter went unheeded.

As far as the comment about Enron, I am spread over 23 positions, all but one of which have been considered very stable. The problem is that even the most stable mutuals tend to hold shares in the banking industry. That is why the F&F failure dwarfs Enron, both in scope and in $$. It covers the spectrum of most mutuals and many stocks. So I still reject the word "deserve", though I accept I should have been aware (and actually I was) of this as a possibility....but not a likelihood.

And yes, the silence is deafening. If what Enron officials did was criminal, it is likely the execs at F&F are guilty of similar actions, and the failure on the part of those in congress specifically charged with the oversight of F&F is either THE most gross ignorance/incompetence imaginable (remember, there have been calls for more oversight going back to at least the 90s) or is also a criminal act to allow friends & associates to get rich developing, building, and selling multi-family dwellings which had a mortgage failure rate much higher than that of single family dwellings.

 

[EddieWalker]

One thing about those people walking away from their homes because they owe more on them then they are wortht that bothers me is that they owe more in allot of cases becasue they kept borrowing on the equity on those homes to buy stuff. People that I know who did this bought TV's, computers, new cars, furniture and went of vacations with that money. They just borrowed and spent like fools, and even before this all happened, those of us who know these people all figured it was a matter of time until they lost their homes because they could no longer afford the mortgage on them. One of the guys I know was refinancing one year to pay his mortgage, and then taking out a second the other year to do the same. He was so far in debt that he couldn't make his payments without borrowing more money to do so. How he slept at night is a mystery.

So they walk away from the house and their mortgage, but keep all the "stuff" that they bought with those loans. To me, this is wrong and they should be held accountable to what they borrowed. It's not like they were forced to take out those loans, they went to allot of effort to do this. That debt should follow them to their graves, and only after death should we consider them releived of what they owe. I don't believe their childeren should have to be responsible for it, but when they signed for that money, they should pay it back. Period.

Eddie

 

[zeuspaul]

They were risking what they were either living on, or would be living on within 5 years, by being in equities which is against every financial advice I've ever seen. They bet and they lost. What other verb should I use than 'deserve'?

Most financial advisors recommend conservative investors should be in equities. The mix changes but I rarely see recommendations for no equities at any age.

I think the T Rowe Price advice at retirement age is consistant with most if not more conservative.

Strategy 1:
20% Stocks, 50% Bonds, 30% Short-term Investments This strategy represents a lower-risk approach that emphasizes bond and short-term investments. The 20% commitment to stocks attempts to earn returns that will outpace the effects of inflation.
T. Rowe Price

I don't agree with the mix but that is the advice that is commonly given. It seems like the financial advisors all read the same text book. To maximize income I would have a higher percentage of bonds. But what do I know as I am not a financial advisor nor do I use one.

Zeuspaul

 

[CaptPat]

Right now I'm hoarding cash, not taking on any additional debt and letting my 403b ride it out--hopefully it will recover its value by the time I need it.

The guy I was negotiating with to build a pole barn was disappointed when I decided to put that off until this situation stabilizes--too bad I could use the extra storage space, somehow I think I may need the money more in the near future.

 

[dmccarty]

The stock investment rule that I have seen over the years is subtract your age from 100. What you get is the percentage of investments one should have in stocks. If you are a risk taker subtract your age from 110, 120, 130, etc. Whatever you feel is the right number number for you toleration of risk. On the other hand if you are not a risk taker, subtract your ages from 90, 80, etc.

Keyword RISK.

I remember someone who lost alot of money in the stock crash in the late 80s. They were in control of investments for a family member who was in his 60s and had mental issues. The market crashed and the investments lost a large amount of money. I could not believe they had that much to loose invested in the market for a man that old.

The WSJ had another article this week about the current mess, the 1929 crash, other market drops and measuring the differences between them all.

What was striking was the chart that show the market from the early 1900s until today. The 1929 crash caused a bear market until 1942. 13 years of little growth in the market. There were a couple other periods like this as well.

Guess what? Looking at the graph it seems we have been in a bear market since 2000. So we likely have another 5-10 years of bearishness.

The 1929-1942 period saw a drop in the market of a little over 10%. From 2000 to today its 2 or 3%.

My county was about to do property revaluations. They stopped doing them because of the market churn. They made it sound like a good thing but if my property value went down I would pay less taxes. Course they would have to raise the rate to make up the difference. My area has been lucky in that we did not have a bubble like FLA, CA, AZ, etc. The housing market has slowed and prices are down some but nothing like the bubble areas. Sales have slowed greatly though.

Hey, the price of diesel was down to 3.89! Woo Hoo!

Later,
Dan

 

[SLOBuds]

They were risking what they were either living on, or would be living on within 5 years, by being in equities which is against every financial advice I've ever seen. They bet and they lost. What other verb should I use than 'deserve'?

Deserve is a word which implies that all of these depleted 401k accounts are the result of a deliberate decision to make them deplete. Rich people deserve to be rich and poor people deserve to be poor. You can assume that because all rich people take actions to become poor, and all poor people take actions to become rich. If you're an oil guy, you were pretty happy that you decided ... what ... to cause the price of oil to go up so high? And those Enron retirees should have known about their risk way before the end.

Folks who are struggling with retirement now and folks who are struggling to find the next meal are not always in that place due to purposeful actions. Same with folks who are rolling in dough. The struggling ones had no idea whatsoever that Uncle Joe buying a house through a sub-prime loan, along with all the other Uncle Joes, would lead to 1/3rd reduction in retirement accounts and creepy economic threats around the globe.

If I were smart, I would have become self sufficient on my own farm 10 years ago so I'd be ready in case things got REALLY bad. But I didn't make that decision. I invested in my 401k's and real estate. Now I'm getting what I deserve and I don't really know where it will lead. I need to be smarter next time.

 

[Chuck52]

They were risking what they were either living on, or would be living on within 5 years, by being in equities which is against every financial advice I've ever seen. They bet and they lost. What other verb should I use than 'deserve'?

This is perhaps not what you intended, but in fact I have both been given and have read in other financial advice sources that one should still have a portion of your retirement funds in stocks if you intend them to last long term even after retirement. In my case, I am 59 and plan to work to 67 if I am allowed. I have about 35-40% of my 403b in mutual funds, with the rest in bonds and a real estate account which deals essentially exclusively in commercial properties. I plan to use this account as a "savings account" and withdraw only the required minimum except for special purposes, so for me staying in some mutuals still makes sense. However, even if I was planning on this being my main source of retirement income, it is likely I would still be advised to have some exposure to the market in order to hope to keep up with inflation. I stopped adding stock to my portfolio several months ago, but did not sell off any as I missed the peak by quite a margin. However, I expect to start buying more stock soon.

Chuck