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I'm having a financial existentialist crisis

MrMulan — Wed, 11 Feb 2009 09:36:19 -0800

Have I been wrong on my financial core beliefs? I have had a worldview when comes to finances for over 15 years that I am now questioning.

1. I believed 8-12% return on your money over the long term was reasonable, conservative, and realistic.
2. I believed in No-load mutual funds.
3. I believed in dollar cost averaging.
4. I believed Technical Analysis does not work.
5. I believed in A Random Walk Down Wall Street.

First there was this segment from NPR(of all places!) that blew my mind: Technical Analysis actually works (at least for oil)
Then this article from Slate on Suzy Orman. The article disses No-load, and Dollar-Cost Averaging without any references.

Was NPR sinking to a major network level of reporting? Or does TA really work?
What is the mounting evidence against No-loads as part of a passive, long term strategy?

There is no other choice for me but to be an optimist for the long term health and prosperity of our country and by proxy, the stock market. Else, the best thing to do would be to stock up and canned food and guns, and that really isn't a nice way for me to live.
Why then is Dollar-cost averaging bad, if you are doing it in mutual funds, and doing it for the long term?

There are many books out know calling into question A Random Walk Down Wall Street. Is there any truth to them?

Swiss bank accounts 101, or something different?

xanthippe — Tue, 07 Oct 2008 01:56:54 -0800

Where should I keep my money (to protect it from the US economy)? I'm American and it's in US$, but I don't live there and don't have any good reason to keep it there. I don't have that much, but am about to receive an inheritance, which is why this is an issue. Let's say that about half of what I receive will be in either cash or liquid assets, and half will be in Beneficial IRAs (the amounts are significant to me, but probably wouldn't make an international financial planner/accountant blink).

We all know about the US economy. The relative value of the dollar is decreasing, we can count on some inflation, the stock market, etc. etc. I plan on either investing or saving most of my money, but I am unlikely to ever use it in the US (I'm actually thinking about buying a flat in Europe as an investment right now). I may use a small chunk of it for some traveling/living expenses in the near future, and would generally prefer to have all of it secure but accessible and earning some income.

I realize that selling securities/investments/etc. that are part of the portfolios these assets consist of (some of the liquid assets and some of the IRA) will lock in my losses now; however, I'm also concerned that, even if the value recovers over time, the long-term depreciation of the dollar and the effect of inflation may negate any rebound. Is there any real advantage to not moving these assets out of the US (i.e. out of US banks, the US investment market, etc.) right away?

If I do move my money abroad, how should I actually do this? What are the logistics? And where to: Swiss bank account? Investments? What currency should I go with? I may have the option to invest the assets of the Beneficial IRA in foreign markets; should I think about this, or just cash them out, take the penalty, and run with the cash? If I can invest the contents of the IRA internationally, does that really preserve it from the US market?

I currently live, work and have a bank account in Oman; the local currency (as in most GCC states) is pegged to the US dollar. There has been lots of talk about unpegging the currencies, or re-pegging them to the Euro (Kuwait already unpegged theirs). I'm no economist, but things seem pretty stable locally, and it seems to me that if I exchanged all my dollars for Omani rials while they are still pegged - i.e. the value of the dollar has not decreased against the rial as it has against every other world currency that is not pegged to it - that I could stand to benefit immensely from this transaction by either maintaining the value of my money in rials if the currencies are unpegged while the dollar drops, or even seeing it increase for the same reason. Is this foolish or a good opportunity?

I don't have a long-term commitment to Oman, however - it's just where I happen to be living right now. I don't have a long-term commitment to any place, and specifically not to the US (despite my citizenship). I'm essentially a nomad (though I may well stay where I am forever - only time will tell). So the real question is, for the long-term, where should I make my "financial home" - where should I maintain my savings and investments not knowing where I will be living for the foreseeable future? How can I educate myself about this?

I don't know what to ask more specifically because I have never had to deal with finances in excess of a few thousand dollars before, so any advice as to where to start and how to prepare myself for this kind of decision-making will be appreciated. I need to 1) protect my money from the US economy (maintain as much of its value as possible regardless of where it is invested/what currency it is denominated in); 2) make money if possible by investing/earning interest; 3) ensure that I am not vulnerable to taxation/residency or citizenship requirements for any country I keep my accounts in/maintain my investments from.

What should a European do with this American savings account that is depreciating in value?

Anonymous — Mon, 21 Apr 2008 08:42:23 -0800

European who has USD in an American account - what should I do? I'm European, but lived in the US for a little while, where I had a very good paying job that allowed me to save money. I have a little over $10,000 in an American CD now. I came home to Europe and went back to school, thinking I could use that money to start up a business, make a downpayment on an apartment or something once I gradutae.

I have been watching in horror as the dollar went down against the euro and now that money I was counting on is shrinking away. Are there any suggestions on what I should do with it? Should I just leave it and wait for the dollar to recover? Should I buy something in the US that is likely to appreciate in value? If I had a good income now, I would buy an American apartment or something with it, but I'm a student living from paycheque to paycheque.

What should I do?

What's the safest possible thing that I can do with my money?

Afroblanco — Thu, 20 Mar 2008 12:18:24 -0800

What's the safest possible thing that I can do with my money? Anyone who's seen me around the finance threads knows that I take bearishness to an extreme. Having witnessed the 2000 tech crash, I have no faith in the stock market or the US economy. I keep all of my money (USD) in a savings account. However, with the recent financial turmoil, I have a few questions :

1) Is it conceivable for the FDIC to fail?
2) If so, is there a place where I can put my money that will be safer than a savings account?
3) What's the safest, most risk-free way for me to save money and not get killed by inflation and the tanking US dollar?
4) If there is a safe way for me to save money and not be punished by inflation and the depreciating dollar, is there a way that I can do this without having to stress out and micromanage my finances? I don't want to be checking the finance page and making adjustments every day.

One thing that I must ask of you all - please do not turn this into a political debate. I know that issues of economics are often politically charged, but I ask you to please not address that aspect of the situation. Also, please take it easy on me. Even though I follow finance news, I've never done any investing or money management other than socking money away in my savings account. I'm a n00b, I admit it, so please don't talk down to me.

Any links to relevant articles or informational resources - especially those readable to the layman - will be appreciated.

Thank you.

Is the money supply contracting, or expanding?

Pastabagel — Mon, 17 Mar 2008 11:39:51 -0800

FinanceFilter: Is the money supply contracting, or expanding, after netting all the Fed action, bank closures, mortgage defaults, etc? The dollar falling seems to signal a net increase of money supply, but this is inconsistent with the thesis of a credit or liquidity crunch. If the money supply is growing at a slower rate due to tighter lending practices, shouldn't the dollar be rising, even in the face of Fed-rate cutting? Do we know the net expansion or contraction of the money supply due to the combination of rate cuts and mortgage defaults? I understand that Fed rate cuts have the effect of increasing the money supply. I understand that lower rates lower the value of the dollar, because it puts more dollars into existence tomorrow than existed today, i.e. given a constant demand, the increase of supply lowers the price.

The housing boom that peaked in 2005 involved people borrowing money to buy houses that it turns out they could not afford. This borrowing of money expanded the money supply back then. I understand that as people defaulted on their mortgages, the money supply didn't recontract (as the money that was created was spent on the house and put into the system). But as the dominoes fell, and first the mortgage companies, then regional and national banks, then CDO-holding brokerages and hedge funds were hit and stopped lending out, there should have been an attendant lack of money (from mtge payments, etc.) to lend out to future borrowers. So the money supply in the future should be smaller than we expected it to be last year. Shouldn't this cause the dollar to rise (or fall slower)?

In other words, given the 2005-2006 money supply and interest rates, the dollar had a price. But given future lending trends, the money supply growth should be slower, which other things being equal should increase the value of the dollar, right?

Is it possible that the Fed knows quantitatively the extent of the default/CDO worthlessness problem (and future money supply contraction), and isn't revealing publicly what it knows? If so, wouldn't this mean that when the Fed cuts rates, we don't hear about the amount of the money supply contraction that the Fed's inflationary move is supposed to offset, we only hear about the inflationary part of it and conclude therefrom that the money supply is growing too fast?

FX gives me a headache

barrakuda — Fri, 15 Feb 2008 06:46:02 -0800

I am permanently moving from the US to Europe in about a month. I have about $50K in savings in HSBC high (and ever-falling) interest account. I am at a loss as to what to do with this money. Money-savvy Mefites, please come to the rescue. So I have all this money sitting in savings. For the next four months my salary will continue to be paid in dollars. I am a horrible, albeit charming, investment ignoramus. On one hand, I feel terrible about converting my savings to euros, on the other I don't know whether I want to leave my money in the States especially if the dollar is to further depreciate against the euro. I considered buying an apartment in Washington, DC and renting it out; but I wonder if there are other means of managing my hard-earned money and assuring that it will not loose its value. Ideas? Comments? Anyone? Bueller?

Saving money in euros...

Afroblanco — Fri, 02 Nov 2007 11:49:23 -0800

I keep all my savings in a Citibank e-savings account, which is like a regular savings account, only with a higher interest rate. Recently, the dollar has totally been tanking, and this trend doesn't show any signs of reversing. What's the easiest, safest, most profitable way for me to save my money in euros instead of dollars? This is what I like about the e-savings account :

1) My money is FDIC insured.
2) The interest rate is higher than that of a typical savings account. It's somewhere around 4.25%.
3) I can take my money out any time I want without incurring any kind of penalty.
4) It's ultra-low-maintenance - I can just put my money in and forget about it.

I would like to put my money in euros without sacrificing any of the above, if possible. I know that I won't be able to find something that's FDIC insured, but I would like something that has a similar degree of security.

The fact of the matter is that the dollar is totally tanking, and I don't want to see my life's savings evaporate because of inflation or anything else that I don't really understand.

If the dollar collapses, what the hell happens to my retirement account?

Anonymous — Mon, 01 Oct 2007 14:54:38 -0800

Looking for good articles, links, etc. that discuss (rationally, not all panicky-like) strategies for managing one's 401(k) in light of recent shifts in the market and (perhaps more importantly) the declining dollar. So far, everything I've found seems geared toward investors managing their stock portfolios rather than workers managing their retirement accounts. Part II: if anyone would care to comment (I know that You Are Not A [or My] Financial Planner), here's my particular situation (hence why the question is anonymous; it's that weird American neurosis about discussing income rearing its ugly head).

Me: late 30s, unmarried/no kids (but long-term SO and I are discussing both of those factors changing over the next couple of years). I expect to retire in 25-28 years. My employer also offers a pension on top of our retirement plan, in which I am fully vested (but don’t know how much I want to even bank on it, considering the horror stories that sometimes crop up regarding disappearing pension funds). I don't plan on relying on Social Security for anything; I figure if it still exists when I retire, that will be gravy.

Income: $53,000/year, with 4-5% raises annually. I put aside 10% of pretax income into my retirement account, with a company match of 4% of my income. I plan to increase my investment by 1 or 2% annually till I reach my contribution limit. (Other relevant financial facts: I rent my home, own my car outright, and have about $7000 in savings; my only debt is about $3000 in CC debt--at 0% till next summer--which I am on track to pay off once and for all in less than a year.)

Currently have just under $27,000 in account (I didn't really start getting serious about contributing to plan and managing it till a few years ago). My asset allocation is:
- 25% international equity
- 30% U.S. small/mid equity
- 30% U.S. large equity
- 15% "guaranteed income"

None of those funds has significant holdings in real estate, so they haven’t (so far) lost much value in the recent market gyrations at all (in fact, while some of my individual funds are down, my overall return is--for now, at least--still quite good). Beyond that, I understand that the market has its cycles anyway, and has historically always gained in value over the long run. (And since I’m not retiring for at least 25 years, the long run is what I am concerned about.)

BUT! I am very concerned about long-term dollar devaluation. Does it make any sense to shift more money into international funds (which are doing extremely well for me), even though those are normally considered the most risky? That is, if the dollar keeps declining for years to come (which I think it might), doesn't that actually mean that international funds become less risky?

Also, is there anything (besides hysteria) to the rising hubbub in the blogosphere of "Buy gold! Buy gold!"? And what to make of the analysis that I read somewhere (wish I could find it now) that the long-term historical gains in the stock market may begin to reverse once the baby-boomers begin retiring (i.e., once they start removing their funds out of the market in quantities greater than the current workforce will be putting their funds into the market)?

Sorry if some of these questions seem rudimentary. As I said, I only started paying attention to these things in the past few years. Thanks!

Dollars to donuts

doctorcurly — Thu, 20 Sep 2007 05:42:04 -0800

Should I be worried about an impending collapse of the US dollar? There's been a lot in the news lately to suggest that the US dollar is headed for even deeper trouble than it's been, starting with various oil-producing countries moving away from the dollar standard, and China's threatening to off-load its stash of dollar reserves.

Any economists out there care to comment?
This question was asked also about a year ago, but the times, they are a-changin'...

Economics Question

specialk420 — Sat, 20 Nov 2004 08:05:33 -0800

"The Fed chief also seemed to be practically guaranteeing higher interest rates, saying that investors who weren't hedged against a rise were "desirous of losing money."."

these questions have been asked before, but any further thoughts on a hedge for dollar positions and increasing interest rates?