My 401k

NEW -> Contingent Buyer Assistance Program
[quote author="blackvault_cm" date=1227154762]Just wanted to chime in on the 401K talk. I'm personally opposed to any 401K contributions, but thats just me. I have my reasons. Sure employer matching sounds great and so does the initial tax breaks (which really isn't that much considering your capital gains are still taxed and thats where the money is at) but here is my reasoning as to why.



Lets say you make 100K and you contribute the max 4% of your salary and the company matches another 4%. You get a 100% return. Fantastic when you start off. If you only have 20-30K in your 401K an extra 4K is a great return.



Now, lets fast forward 20 years and lets say you have 1,000,000 in your 401K. Do you think your 4K contribution and 4% matching makes much of a splash? Eh not so much. However, here is the big catch. You don't have the option to buy insurance on your 1M dollar 401K. You can't short the market. You can't buy puts, you can't write covered calls and thus leave yourself completely exposed. On top of that some other dumbass is running the fund for you who obviously doesn't have a clue as to what he is doing since he already lost you 35% this year and still has the balls to collect his management fee.



Let me ask you a question. You have a 1M dollar home...do you insure it? IF so, why not have the option to insure your 401k?



Bottom line, I don't contribute to a 401K, never have...never will because the option to insure your precious retirement nest egg isn't there. I'll simply max out my IRA (because I can buy options) and the rest goes to my personal trading account. Where I manage my own money and where I have the option to protect it.



Now the big excuse is that people always say that they don't know what they are doing or don't care to invest time on a little homework. This is the worst excuse I've seen im my life. So you are willing to have a chunk of your salary go to a 401K but unwilling to learn how it works or what it does? If I didn't know anything about the stock market, I'll be sure as hell to learn anything I can about it to protect my million dollar account. Otherwise why throw money at it? Cause someone told you it is a great thing to do?</blockquote>


black_vault, but no everybody is as smart as you when it comes to investing. You can shift all your money into cash. Here is a good argument for 401K, you can defer a lot of money pretax. It's like $15K for under 50 and $20K for over 50. That is a lot of money. You can also convert it to rollover IRA, add your kid and pass it as an inheritance.



<a href="http://www.teplg.com/index.php?option=com_content&task=view&id=32&Itemid=48">http://www.teplg.com/index.php?option=com_content&task=view&id=32&Itemid=48</a>
 
<blockquote>black_vault, but no everybody is as smart as you when it comes to investing. You can shift all your money into cash. Here is a good argument for 401K, you can defer a lot of money pretax. It's like $15K for under 50 and $20K for over 50. That is a lot of money. You can also convert it to rollover IRA, add your kid and pass it as an inheritance.



<a href="http://www.teplg.com/index.php?option=com_content&task=view&id=32&Itemid=48">http://www.teplg.com/index.php?option=com_content&task=view&id=32&Itemid=48</a></blockquote>


I know the benefits. However, what good is deferring your taxes when you just lost 50% of your investment. I mean its one thing to "save" 33% cents on a dollar through taxes via your contributions, however when you lose 40% of your investments...I just don't see the point. Plus how many contribute to their 401Ks and then change jobs a year, two or three into it. They lose the employer contribution completely or some of it.



I mean its better than nothing, I won't argue that. However, I just like the flexibility of being able to do with it as I please. I like being able to make money both ways, and create strategies that are pretty bulletproof in a collapsing economy.



For example the market went down another 400pts today roughly 5%. I gained 0.68% on my portfolio. I started accumulating shares of various companies, however they got beat up today. I did write covered calls on them and I still have puts protecting myself so I'm virtualy in a neutral position with a slight bias towards the downside.



I guess I just can't fathom the thought of having a million bucks and losing 40% of it in a matter of a couple of months and on top of it still having the lack of visibility of where we are going next. Do I lose 80% when its all said and done?



Plus, I believe we are going to enter a period where the market stays dead flat. 10 years in the future, DOW could be at 9K. With inflation adjusted...you are screwed. With your own account you can at least write covered calls and collect a monthly premium in a dead market.



I still get what you are saying that not everybody knows how to do all that. But my excuse is that if you truly care about your money and have a fair amount in the market it is your duty to understand the basics. Writing covered calls isn't rocket science. If you need help, PM me and for a few bucks I'll do it for you if you don't care to do it yourself.



DOW can fall 5000 pts tomorrow and I will sleep peacefully just like the night before.
 
[quote author="blackvault_cm" date=1227157891]<blockquote>black_vault, but no everybody is as smart as you when it comes to investing. You can shift all your money into cash. Here is a good argument for 401K, you can defer a lot of money pretax. It's like $15K for under 50 and $20K for over 50. That is a lot of money. You can also convert it to rollover IRA, add your kid and pass it as an inheritance.



<a href="http://www.teplg.com/index.php?option=com_content&task=view&id=32&Itemid=48">http://www.teplg.com/index.php?option=com_content&task=view&id=32&Itemid=48</a></blockquote>


I know the benefits. However, what good is deferring your taxes when you just lost 50% of your investment. I mean its one thing to "save" 33% cents on a dollar through taxes via your contributions, however when you lose 50% of it on top...I don't see the point. Plus how many contribute to their 401Ks and then change jobs a year, two or three into it. They lose the employer contribution completely or some of it.



I mean its better than nothing, I won't argue that. However, I just like the flexibility of being able to do with it as I please. I like being able to make money both ways, and create strategies that are pretty bulletproof in a collapsing economy.



For example the market went down another 400pts today roughly 5%. I gained 0.68% on my portfolio. I started accumulating shares of various companies, however they got beat up today. I did write covered calls on them and I still have puts protecting myself so I'm virtualy in a neutral position with a slight bias towards the downside.



I guess I just can't fathom the thought of having a million bucks and losing 40% of it in a matter of a couple of months and on top of it still having the lack of visibility of where we are going next. Do I lose 80% when its all said and done?</blockquote>


I shifted my money over cash a while back so it does take some watching over. But you can do the same, buying covered calls in your non-401K account for the insurance of your 401K.
 
also its not every year that the broad stock mkt loses 40%. in hindsight, one might wish they didn't allocate so heavily into their 401k this yr, but not allocating is a guaranteed loss. if you're in a higher bracket, you're taking a 40-50% loss even before you get your money to invest.



for me, being fairly conservative, i have always allocated my 401k into fixed income. i prefer my income-generating investments sit in a tax deferred account instead of getting continually taxed every yr. my more aggressive plays, l-t growth stocks, and hedging bets i play with in normal taxable accounts.



but i agree with you, 401k is not an automatic excuse to not keep an eye on your hard-earned money. even though you might be limited to a basket of mutual funds, you should still be at least managing your allocation mix.
 
[quote author="acpme" date=1227160595]also its not every year that the broad stock mkt loses 40%. in hindsight, one might wish they didn't allocate so heavily into their 401k this yr, but not allocating is a guaranteed loss. if you're in a higher bracket, you're taking a 40-50% loss even before you get your money to invest.



for me, being fairly conservative, i have always allocated my 401k into fixed income. i prefer my income-generating investments sit in a tax deferred account instead of getting continually taxed every yr. my more aggressive plays, l-t growth stocks, and hedging bets i play with in normal taxable accounts.



but i agree with you, 401k is not an automatic excuse to not keep an eye on your hard-earned money. even though you might be limited to a basket of mutual funds, you should still be at least managing your allocation mix.</blockquote>


You mention an excellent point that I didn't mention myself. Placing money into fixed income funds is an excellent way of saving cash. You virtually have no risk and your rate of return is a small percentage + whatever you save on taxes. In this case its almost guaranteed.



Kudos for bringing it up.
 
i wish it were no risk! fixed income hasnt been so hot either this yr with all the default risk out there. but it's hard to complain about flat or slightly negative returns this yr compared to what could have been...
 
Moved all of my measly 401k money and all my family's over to cash back in Aug after the bounce up from the 11k dow mark.



The entire concept of retirement savings is flawed and has the poor investor by the balls! Up until very recently there weren'tr even funds that allowed you to benefit from shorting the market. Investment Management Companies (mutual funds) are some of the most highly regulated companies on the planet. These rules were set a long time ago in an attempt to propect people. Can't buy shares on margin, can't short shares, and can't even give you market pricing. You have to wait to execute your trade at the NAV at day's end. Meanwhile non investment management companies, like hedge funds, are highly unregulated and can trade whatever they want whenever they want. And both parties are playing in the same game! What a scam.



Imagine if you were playing a one on one basketball game with someone. You have to score more points to win, but you can only play with one arm behind your back and you can only shoot 2 pointers. Your opponent can do whatever they want. Sounds a little one-sided huh?
 
[quote author="acpme" date=1227162193]i wish it were no risk! fixed income hasnt been so hot either this yr with all the default risk out there. but it's hard to complain about flat or slightly negative returns this yr compared to what could have been...</blockquote>


Well yeah. I meant compared to what others are getting. I'm sure anyone will take a 5 or 10 percent pickpocketing vs a 50 percent robery.
 
[quote author="lendingmaestro" date=1227163094]Moved all of my measly 401k money and all my family's over to cash back in Aug after the bounce up from the 11k dow mark.



The entire concept of retirement savings is flawed and has the poor investor by the balls! Up until very recently there weren'tr even funds that allowed you to benefit from shorting the market. Investment Management Companies (mutual funds) are some of the most highly regulated companies on the planet. These rules were set a long time ago in an attempt to propect people. Can't buy shares on margin, can't short shares, and can't even give you market pricing. You have to wait to execute your trade at the NAV at day's end. Meanwhile non investment management companies, like hedge funds, are highly unregulated and can trade whatever they want whenever they want. And both parties are playing in the same game! What a scam.



Imagine if you were playing a one on one basketball game with someone. You have to score more points to win, but you can only play with one arm behind your back and you can only shoot 2 pointers. Your opponent can do whatever they want. Sounds a little one-sided huh?</blockquote>


I agree and disagree. Hedge Funds are unregulated, but nobody is forcing you to give them your money. When you invest in a hedge fund you sign an agreement acknowledging that you know the risks. That they are not responsible for losses. They also disclose how they plan to invest your money ahead of time so you are well aware. Many times though they break these rules and gamble your money in ways you never intended. But if you do even a small bit of research on hedge funds, you'll find plenty of articles stating how hedge funds went belly up or are faced with criminal charges because of how they used your money. No secret there.

So if joe doe walks up to you and says give me 100K and sign here I can get you 30% returns or higher on your investment...its your fault for doing it. Not theirs.

I can also say that casinos rob me each time I go there, but did they really rob you? Or did you willingly give them cash...



If you give your money to a hedge fund, expect 100% returns a year and expect -100% losses.
 
Well, since I started this thread, I just wanna say thanks.

I am sorry to say at this point, I understand some and I do not understand some of your conversations. :red:

At times I have no clue what you are talking about. (surprise, surprise, ha)

BUT I have learned sth new... again.... here ....at IHB. :cheese:



Pardon the interruption. Now, please carry on.
 
I am not defending hedge funds, I am complaining about the regulatory structure that is applied to the majority of American's qualified retirement plans. It is seemingly grossly unfair to have multiple parties involved in the same "game" but subject to different rules.
 
[quote author="blackvault_cm" date=1227154762]

Let me ask you a question. You have a 1M dollar home...do you insure it? IF so, why not have the option to insure your 401k?</blockquote>


How does one insure against a loss in value of a $1M home? Why didn't all the flippers utilize such insurance and lock in their gains? Typical homeowners insurance is only a hedge uncommon events, not depreciation.
 
[quote author="ipoplaya" date=1227172217][quote author="blackvault_cm" date=1227154762]

Let me ask you a question. You have a 1M dollar home...do you insure it? IF so, why not have the option to insure your 401k?</blockquote>


How does one insure against a loss in value of a $1M home? Why didn't all the flippers utilize such insurance and lock in their gains? Typical homeowners insurance is only a hedge uncommon events, not depreciation.</blockquote>


I didn't mean as an investment. I used it just as an analogy. Just like you don't go running around without insurance on your home or car or your life, you shouldn't run around without insurance on your retirement money especially if there are ways to insure yourself.



But to answer your question in a way, you could have always bought a million dollar home and then perhaps bought puts on the real estate ETF. Maybe even bet that we will have an implosion of credit swaps. WIthout thinking about it too much, those are a couple of ideas just not perfect ones. But once again...I didn't mean it that way.
 
the way to hedge your 401k is to not treat it as a black box, but as part of your overall portfolio. unfortunately most people have far too much risk in their 401k under the "it's a long term investment" philosophy, and certainly thats the mantra pushed by far too many financial planners. also they don't save and invest outside of their 401k, i.e. nothing to hedge with. basically putting all your eggs in one basket.
 
[quote author="acpme" date=1227224344]the way to hedge your 401k is to not treat it as a black box, but as part of your overall portfolio. unfortunately most people have far too much risk in their 401k under the "it's a long term investment" philosophy, and certainly thats the mantra pushed by far too many financial planners. also they don't save and invest outside of their 401k, i.e. nothing to hedge with. basically putting all your eggs in one basket.</blockquote>
Or you can short the market in your individual trading account to hedge against 401k losses like I do. I've made over $15k since the beginning of September.
 
joe sixpack asks:



individual trading account? what's that?



oh... it's money that you save on top of your 401k which you invest.



save on top of your 401k??? bwahaha that's CRAAAZY! i already stock away a full 3% out of my paycheck in 401k. how do you expect me to live with that much SAVINGS??
 
I didn't have the smarts to move all my funds to cash in Jan 2008. Currently I'm down 48%.



But I know not to "buy high, sell low", so am not going to cry over it too much and just let it be. I'm not going to retire for another 30+ years anyway, so why fret over 1 down cycle.



It was my choice to allocate 95% to equity funds and 5% to bonds. So I can only look at the mirror to point fingers.



I'm familiar with Taylor Larimore's 4-fund portfolio concept, and choose not to use it. If I had used the 4-fund strategy, I'd only be down 24% instead of 48%:



<a href="http://socialize.morningstar.com/NewSocialize/forums/1/128297/ShowThread.aspx">http://socialize.morningstar.com/NewSocialize/forums/1/128297/ShowThread.aspx</a>



THE 4-FUND PORTFOLIO: (25% each)



A Money-Market Fund

Total Stock Market Fund

Total International Fund

Total Bond Market Fund



FOR MAXIMUM TAX-EFFICIENCY:



Fill-up your taxable account in the order shown. Put what's left into your tax-deferred account(s).



THE ADVANTAGES:



Maximum Diversification (low risk)

Zero overlap

No manager changes

No style drift (from benchmark index)

Desired stock/bond/cash allocation is easy.

Never a need to rebalance within asset classes

High probablity of beating most funds

Never below index performance

Minimum maintenance

Lowest possible cost

Low taxes

Simplicity.



ADDENDUM:



1. High-income investors should substitute a tax-exempt bond fund for Total Bond Market Index Fund and use a Tax-Exempt Money Market Fund.



2. Larger portfolios may benefit from adding TIPS, REIT, or Small-Cap Value in tax-deferred acounts.





---------------------------------------------------



These two links explain the sophisticated logic of the 4-fund portfolio (recommended by Mr. Bogle):



<a href="http://www.stanford.edu/~wfsharpe/art/active/active.htm">1. The Arithmetic of Active Management by Nobel Laurete William Sharpe</a>



<a href="http://homepage.mac.com/j.norstad/finance/total.html">2. Investing in Total Markets</a>





========================



Vanguard Fund & YTD returns



Prime Money Market: +2.48%

Total Bond Market Index: +0.30%

Total Stock Market Index: -44.64%

Total International Stock Index: -53.29%



Account average: -23.7875%
 
[quote author="Newport Trojan" date=1227071549]I shifted everything out of equity mutual funds in Jan and loss approximately 8%. I then moved it into what I thought was the safest thing...money market fund offered by Fidelity, but after reading this blog, Calc'd Risk, Naked Cap...I decided I didn't want to risk the buck being broken. I have currently allocated everything into Pimco Total Return Fund. I figure if you are going to bet, be on the side with the biggest pig at the trough. My 401K options are super limited from a non-equities offering, with just the 2 previous funds as the offering. I think we still have a ways to go as far as stocks getting to their bottom. I may start buying back once we get close to 7500 or in a few years...I figure I mitigated enough losses that I can time the market and still be ok if I am a little off.



Anyone know if I can contribute to my 401K but keep it in cash or is this a plan by plan detail?</blockquote>


Breaking the buck at Fidelity wouldn't have been as big of an issue if you had left the money in the money market fund through December 18.



http://personal.fidelity.com/produc...rticles/money-market-funds.shtml.cvsr?refhp=p



Some highlights from the link:



<em>Fidelity Investments and the Board of Trustees of Fidelity?s money market funds have determined that all of Fidelity?s retail and institutional money market mutual funds will participate in the U.S. Treasury Department Temporary Guarantee Program for Money Market Funds. The funds have entered into guarantee agreements with the Treasury Department that govern their participation in the program.



Under the program, the U.S. Treasury will guarantee the share price of any publicly offered eligible money market mutual fund that applies for and pays a fee to participate in the program. <strong>The coverage would apply only to investments held in participating money market funds as of the close of business on September 19, 2008.</strong>



Under the program, coverage is provided to shareholders for amounts that they held in participating money market funds as of the close of business on September 19, 2008. A shareholder?s holdings in a participating money market fund as of September 19, 2008, represent the maximum amount of assets eligible for reimbursement under the program. Any increase in the number of shares held in an account after the close of business on September 19, 2008, will not be guaranteed. If the number of shares held in the account fluctuates over the period, investors will be covered for either the number of shares held as of the close of business on September 19, 2008, or the current amount, whichever is less. If a shareholder closes his or her account, any future investment in the fund will not be guaranteed.



<strong>The guarantee will be triggered only if a participating fund liquidates its assets as a result of its net asset value falling below $0.995, commonly referred to as "breaking the buck". </strong>The Treasury Department states that, in the event that a participating fund breaks the buck and liquidates, a guarantee payment should be made to investors through their fund within approximately 30 days, subject to possible extensions at the discretion of the Treasury.

Fees paid to the Treasury Department to participate in the program will depend upon each fund?s net asset value (NAV) per share as of September 19, 2008.



The program is designed to address temporary dislocations in credit markets. <strong>It will exist for an initial three-month term and is scheduled to terminate on December 18, 2008</strong>, unless extended by the Secretary of the Treasury.

</em>



Alas, any money added to the money market fund after September 19th does not get the benefit of this temporary Treasury guarantee.



You might want to lobby your employer to add other types of investment options to the 401k offering list. The employer is generally the one who determines the mix for its employees.
 
You must log in or register to reply here.
Back
Top