Post by citybudgetmom on May 18, 2012 8:11:25 GMT -5
Hello! You ladies have been such a help lately with my confusion as how to manage our money. You guys suggested we contribute the max ($17k/year) to the 401k and the max to the IRA.
While I did make the adjustment to the 401k contribution, I'm hesitant to funnel money into the IRA because I keep watching it go down. I only have $18,300 in there because it's mine and I stopped working a few years ago to stay home. As of last month it was $19-something. Why would I put $5k/year in there only to watch the economy suck it away. Right? What am I missing here?
I'm just wondering if I should be putting that money in something safer, like a bond or just an FDIC-insured savings account.
Post by dr.girlfriend on May 18, 2012 8:19:41 GMT -5
Because the lower it goes the more stock you're getting for your money, and you're banking on it being higher by the time you retired. The $5k I put into my Roth this year is probably worth about $4.5k. The $5k I put into my Roth in 2010 or whenever is worth around $10k. You're going for a historic rate of return that will hopefully beat out any "safer bet" like a CD or money market.
Post by dr.girlfriend on May 18, 2012 8:21:02 GMT -5
Also, you're comparing last month to this month. Do you know how much you've put in in contributions? That might make you feel better (in other words, you may have only put in $10k, but that's worth $17k now).
Post by theintended on May 18, 2012 8:21:53 GMT -5
Investing money when the market's on a downturn is like buying on sale. You won't be able to time the bottom, but a dip like we're seeing now is as good a time as any.
Remember, what you're getting with your money are shares. When the price goes down, you can buy more shares with less money. When the price increases, it's increasing across all the shares you own, so the more shares you own, the more value you have.
To expand on this, the fact the investments are going down basically means that the stocks are getting cheaper. So to stop buying them now, when they are relatively cheap doesn't make much sense on its own.
If you are very, very risk-adverse, maybe CDs or something would be better for you. But, you'd very likely be giving up a ton of income if you do that, assuming you have a while until retirement. (I'm assuming you are in your 20s or 30s but this is still true if you are older).
There is also the question of whether your particular investments are the best choices for you, both based on the types of funds you are buying and the quality and price of the particular funds. If you post the funds you have people will probably give you opinions on them (but of course they will just be opinions that you'll have to think through).
This doesn't mean it will continue going down forever. The market will always go up and down. I always tell my clients that there will be a winning period as well as a losing period and that they need to stick through all the bad times as well as the good times. I see people hop around a lot looking for the holy grail that only wins. They go with ones that had been doing well for the past few months but they get in when things starts taking a downturn then quit just before things turn around for better. People need to look at how it has done overall as an average not what it has done recently.
You mentioned that you have stopped contributing to your IRA because you stopped working, my guess is you stopped working near the peak of the market a few years ago. Since you haven't been contributing you have actually missed some great opportunities over the past few years.
Continuing to invest small portion over time (dollar cost averaging) is a great way to capitalize on the drops in the market. If you invest in a FDC savings account you aren't even going to keep up with the real impact of inflation. The most you can earn on savings account is 1-1.5% right now and we all know gas has gone up more than that.
I would be more afraid of putting all of my money in bonds right now than in stocks. Bonds aren't a 100% secure investment and can go down in value. And a lot of bonds are pretty pricey right now.
Thank you for posting this, you must have read my mind. I opened my brand spankin' new roth IRA 3 days ago and have already lost $60 from the $3k I put in. I'm thinking of unhooking that account from Mint just so I don't have to stare at it and fret over it every day.
Thank you for posting this, you must have read my mind. I opened my brand spankin' new roth IRA 3 days ago and have already lost $60 from the $3k I put in. I'm thinking of unhooking that account from Mint just so I don't have to stare at it and fret over it every day.
This is a very good idea. You'll just drive yourself nuts looking at a 40+ year investment on a daily basis. Check it quarterly at most.
Let's see if I can get this picture uploaded. This is from a seminar I went to this week. It shows the market volatility over several time frames. Note that when you average it out over 10+ years it's up.
Except I have a rollover IRA from 1999 that is still less than I put in. Damn tech boom.
An IRA is a long-term investment and you really have to resist the urge to micromanage it or check the balances on a short time frame.
Even if you had put money into the stock market THE DAY BEFORE the crash in 1929, you would have made significantly more money in the long run than keeping it in cash. Yes, it would have been very painful in the days and weeks and months (and even years in that case) right after the investment/crash, BUT it still went on to recover and grow far more from there!
I usually dollar cost average in my IRA- meaning I invest the same dollar amount every month. When things are low, that dollar amount buys more securities. However, given how quickly things have fallen, I might throw in extra right now just to take advantage of the drops. Of course I can't predict the bottom, and things may continue to go down, but with the big picture in mind, I think this is a good time to buy.
As M6 pointed out, the very worst thing to do is to try and chase returns, thinking you can time the market by moving in and out. SO MANY PEOPLE panicked after 2008 and went into cash. They might have saved some money in the short-term but the problem is that they didn't get back in the market in time, and many of them missed the recovery, leaving them much worse off than those who stuck it out (or even better invested when things were down)
You mentioned that you have stopped contributing to your IRA because you stopped working, my guess is you stopped working near the peak of the market a few years ago. Since you haven't been contributing you have actually missed some great opportunities over the past few years.
I'm the idiot who didn't know I could add to it! I thought I had to retire on that $18k lol.
. SO MANY PEOPLE panicked after 2008 and went into cash. They might have saved some money in the short-term but the problem is that they didn't get back in the market in time, and many of them missed the recovery, leaving them much worse off than those who stuck it out (or even better invested when things were down)
Ha! I just talked about this in another post. My H is one of those. It is really frustrating me because he still won't put it back.
Thank you for posting this, you must have read my mind. I opened my brand spankin' new roth IRA 3 days ago and have already lost $60 from the $3k I put in. I'm thinking of unhooking that account from Mint just so I don't have to stare at it and fret over it every day.
This is a very good idea. You'll just drive yourself nuts looking at a 40+ year investment on a daily basis. Check it quarterly at most.
Agreed. I don't have my retirement accounts connected to mint for that very reason.