Is it the eve of 1929?

November 6, 2007 8:34 AM

401K survival??? What would you do under current regulations to move or shelter your 50G +/- or so just in case the economy really tanks in the next 90 days or so? Metals? Bonds? Euro based funds?
posted by Freedomboy to work & money (16 comments total)

Wouldn't worry too much about it, actually. Staying with a balance of risk portfolio is what you want until you're at more like 500G or so. Basically, when there's enough there to actually retire on, then you want to talk to a financial adviser about switching to a low risk plan.

Low risk generally means bonds, T-bills, CDs, that sort of thing. Guaranteed returns, no market funny business. NOT metals or fleeing to other countries in hope that they're somehow "better" or at all insulated. When one market tanks, they all do badly for a few days.
posted by TeatimeGrommit at 8:39 AM on November 6, 2007

BTW, low risk generally also means less liquid. Generally you hold those items for years, not days. So dodging a perceived 90-day term risk by switching to a long-term low-risk strategy is not likely to be a good idea.
posted by TeatimeGrommit at 8:41 AM on November 6, 2007

Unless you are planning to retire very soon (like, in the next 5 years), do nothing. DO NOTHING. Leave your money in the market. In fact, when the markets are down, that's when you should invest, so when the markets rebound, you'll be making bank. Like Warren Buffet said, be "fearful when others are greedy and to be greedy only when others are fearful." Do not allow your investment priorities to flit about in the wind whenever the markets change; that is far more dangerous than a dip here and there.
posted by ThePinkSuperhero at 8:46 AM on November 6, 2007 [5 favorites]

Assuming your current fund balance is correct for your age and risk threshold, don't be making ANY drastic moves. Remember that whenever the market drops you are buying low, which is actually what you want to do when investing in the stock market -- and that the market will eventually come back up and make you happy you stuck with it. If things get so bad that the market never comes back up, well, you'll have bigger things to worry about than your 401k.
posted by aught at 8:52 AM on November 6, 2007

What you're trying to do is called market timing. Almost nobody gets it right and ends up with much less return on investment in the long run. Right now you're in a panic, you foresee a poorly performing stock market so you want to cut your losses. The problem is that at some point the stock market will turn direction. You would also have to accurately predict that or you typically lose out on the greatest returns on investment. People are pessimistic in foreseeing downward trends but are at least as pessimistic in seeing upward trends when they're at the bottom. If the market doesn't recover then we'll all be scampering around in cars made from junkyard scrap and waving sawed off shotguns ala Mad Max.

Since you've got 50K in your 401K I would assume you're not planning on retiring in the next 5 years. You should probably be investing for fairly aggressive returns.
posted by substrate at 9:17 AM on November 6, 2007

Do you know something about the market that the rest of the world doesn't? If you don't, then don't worry about trying to time the market.

If you do. Sell all your shares. The 401(k) administrator likely will put all the proceeds in a money market account. Sit and wait until your Spidey sense tells you to get back in the market.
posted by GarageWine at 9:20 AM on November 6, 2007

>Is it the eve of 1929?

I just finished Galbraith's history of the 1929 crash. While another crash seems likely, I doubt it's going to be followed by a depression of the same severity. There were a bunch of stupid, rigid, ideologically motivated policies which greatly exacerbated the depression. Hopefully, who ever's in charge will know better, this time.

As to your question, I have my money in a mutual fund which is short the market, roughly speaking. I'm ahead, but it's a fairly risky approach: the Fed rate cuts made it a little painful at times. I can't actually think of a safe approach, under the circumstances. Lots of people lost their shirts in the head-fake rallies following the 1929 crash because they were investing as ThePinkSuperHero recommends, for instance. Hanging on to cash looks risky because of the possibility of inflation, gold looks expensive...
posted by Coventry at 9:31 AM on November 6, 2007

jeez. i asked roughly the same question 3 years ago - the dive of the dollar. of course hindsight is perfect - but why not take a look at some options rather than take a hit? i did some hedging of the dollar which paid off big time - just wish i had done it sooner.
posted by specialk420 at 9:47 AM on November 6, 2007 [1 favorite]

Your investment should already be diversified. If it's not, do it. If it is, do nothing. Don't get shaky hands just because the market has ups and downs.
posted by blue_beetle at 10:02 AM on November 6, 2007

Folks I'm not worried about making money just keeping the amount I have. As to a comparision with '29 and the aftermath we did not have a global energy and water and credit mess like we have now. Never mind the war to come.

If the current 401K rules permit putting the funds in a money market account that could be the answer for my next few months.

So I have this new question, if the 401 money is put in a money market account does the actual number of dollars go down if the market tanks?

Just looking to park it and wait a while. Zero addtional income for a few months is a blessing compared to a 80% loss or some such.

Funny, I do not trust the market to,... oh say manage mortgages and such, who would have thought they would screw that up........... just to make the CEO's rich?
posted by Freedomboy at 10:37 AM on November 6, 2007

Zero addtional income for a few months is a blessing compared to a 80% loss or some such.

I'm not sure where to begin, you seem to misunderstand several basic and major things about investing. Are you using your 401(k) to save for retirement? Do you realize that $50,000 is not enough to sustain you should you choose or need to retire, either now or in the future? If you have 10, 20 or more years until retirement, you want to leave your money in the stock market now, because even if it goes down tomorrow for a year or 5, over 20 or more years your money will grow in a big way. To move your money to a money market fund while the market goes down and put it back in the market when the market goes up is selling low and buying high, and that's an incredibly bad move.
posted by ThePinkSuperhero at 11:15 AM on November 6, 2007 [2 favorites]

Actually, the credit mess was just as bad 1929 as now, or worse. The banks just used a different set of chicanery to perpetrate it back then. Energy and water are serious problems, but they aren't likely to be critical for years, and the economy tends to be shortsighted about such things. I'm not convinced that the US is going to war with Iraq, but I suppose I haven't been paying attention...

There has been some discussion of money market accounts over at Calculated Risk. I would search the comments there to learn about that.
posted by Coventry at 11:17 AM on November 6, 2007

Do you remember in late-July when the market started its mini-tank? If you would have jumped out of the market on the way down or at the bottom of that you have lost money when compared to riding the storm and ending up where we are today. Less than 1500 (then) to 1520 (today) for the S&P 500.

What about last March, remember that mini-crash? If you would have jumped out of the market then, you would be down even more. 1400 (then) versus 1520 (today) for the S&P 500.

Of course if you would have waited until the bottom then bought, you'd have made a bunch of money. Likewise if you would have sold on the way down, waited a week or a month, then jumped back in at the same price point, you would have broken even.

The problem is timing. It's just so easy to do it in retrospect but you're better off buying lotto tickets if you're playing the game live. Buying at the bottom? You never know when you're really there, you might be buying too soon. Buying back in after jumping out? Well you might have jumped out too soon (first gamble), then you might jump back in too soon (second gamble).

Unless you're just playing with your money ('cause you got more than you need so you might as well have some fun), it's best to get into the market and stay in it. Don't try to time it, as you'll probably loose more than you'd gain. Aren't you glad you didn't jump ship in March of 2006 or this summer? I thought about it back then and I'm sure glad I listened to myself.
posted by pwb503 at 1:25 PM on November 6, 2007

If you think there is a U.S. recession coming, move your money into going concerns that conduct a lot of business overseas. This means KO instead of PEP, YUM instead of BWLD, MMM ($1.5b foreign capex last year), etc. Or think of an oil services company, or a company whose fortune is tied to them; these U.S. companies are best of breed globally and they operate worldwide.

If you think the dollar is tanking, buy U.S. companies that will benefit from this. You know what the best-selling motor vehicle was in China last year? The Buick Lucerne. The US new motor vehicle market topped 9 million cars in 2006 for the first time ever. China bought 7 million new cars in 2005 and 8 million cars in 2006.

If you think the worldwide economy is destined for a collapse, you can't get ready for it in your 401(k). The closest you could come is capital preservation with US Treasuries - either regular or inflation-adjusted, your call - which have never been in default.

Diversification and "buy and hold" is for people who are afraid they're too dumb to predict the future. Since the original poster was very clear about trying to predict the future, shrill exhortations not to do so probably aren't exactly appropriate here.
posted by ikkyu2 at 3:37 PM on November 6, 2007

I don't subscribe to the buy-and-hold-forever theory, nor do I try to treat my 401-K funds like I'm a day-trader. Sometimes market forces demand a shift in thinking, and I try to approach those times -- like now -- with a long, strategic view. Mind you, I'm not a market analyst, and I'm not a financial pro. I can't suggest what you should do, but I can tell what I've done. Maybe something similar would work for you, too.

I've taken a pretty close look at the portfolios of those funds that I own to see what *they* own. I've dumped those that have a large stake in financial services. I've bought into more U.S. tech-oriented funds, more world-stock funds (splitting my interests between indexes and some more aggressive, actively-managed funds... I think the increased expense ratio is worth it just at the moment), and I've hedged my bets a little bit with (non-hedged) inflation protected bond funds. At this point, nearly 70% of my money is in world-stocks.

Course, I started on this path in August, *before* the financial service firms that were staring goggle-eyed at their sub-prime mess reported that they were marking down billions and billions.

I took a tiny hit when I made the switch. While in August the S&P gained 1.50%, I lost 0.24%. However, where the S&P in September and October returned 3.74% and 1.59%, my new portfolio earned 6.80% and 5.94%, respectively.

If it all goes to hell, well, I'm along for the ride. But if the scope of the downturn is even somewhat limited to the greediest pigs at the financial services trough, I hope to ride through the rough spots rather well.
posted by deCadmus at 7:52 PM on November 6, 2007

I'm not convinced that the US is going to war with Iraq, but I suppose I haven't been paying attention...

Oops, I meant Iran, there, not Iraq. (rdr pointed this out to me. Thanks.)
posted by Coventry at 3:31 AM on November 7, 2007