Definition: Liquidity is when you look at your retirement funds and wet your pants.
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Yeah... I'm glad I didn't put any of my money into my 401k. The amount my employer contributed to it is down by over 50% just in the last 6 months. And it never really had any significant gains in the past few years before that. Instead of putting money into a 401k, I put the money towards paying off debt, and so far hindsight has proven that to be the right thing to do.
I lost all of my liquidity (2000 and then keeping my business alive long enough to survive)...but I'm not sure that we've survived yet.
BTW, paying off debt is the most important investment I believe that anyone (at least over 50) can make. And if you're not over 50, then its never too early to start.
Could not agree more. Existing without debt makes other financial items on the "have to" list possible.
I suppose I'm somewhat fortunate in that regard. The tech bubble collapse in 2000 caught me in a very, very, bad spot. I persevered and, after some very onerous and dangerous times, came out on the other side healthier in the financial sense and very much the wiser.
My home is paid for. I own two vehicles -- also paid for. I have no credit card debt -- I use credit cards (one personal and one business) but pay them off at least monthly.
Under those conditions, savings accounts can grow. Investments can be made in an affordable manner with an eye on long-term. A storm can be weathered.
William W. (Woody) Williams
Senior Project Manager
Software Development, PMO, IT Governance
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Woody, you "Lived within your means" and now are benefiting from that sage advice.
Great advice. Still, never give up. Keep up the fight. The Pendulum WILL swing back. Make sure you are on it when it does.
I've been on the pendulum so long, I have motion sickness.
I know how that feels!
Kudos to your astute investing.
Fate was kind to me. I had to take out my money from my 401K for some expenses, and did not put it back in. I paid the 20% penalty for taxes, but incredibly, I am ahead of the game by NOT reinvesting the money. I am just sitting on cash getting 2% interest, but I am NOT going backwards. Funny how stupid lucky you can be?
If you're saying not reinvesting at today's market value means you are ahead, you might want to rethink it ;~)
Agreed, I do not mind bottom feeding now!
Buying into the market now is not "bottom feeding" so much as it is a good decision (if you have cash for a longer-term investment). The question is how far are we from the bottom?
When the market is low (anytime) = Buy.
When the market is high (anytime) = Sell.
Bottom or Top; doesn't matter. Trying to time the market = Fail.
I like your equation for market success!
Maybe he wrong use of words on my part, but you are correct.
That is lucky... My company has rules that say you can't take any money out of your 401k unless they approve a hardship reason. Since I haven't had anything that they'd approve (they didn't buy using it to pay off debt as a valid reason when I asked a year or so ago) like most people I've seen my 401k plummet in value. I'd feel worse about it if I had contributed any of the money in it, but I didn't, what is in there is money the company put there. I'd rather they'd paid me that extra money in cash of course, but at least its their money that was lost instead of mine.
And I guess the bottom line is at least I should be thankful not to have any misfortune serious enough to qualify for a "hardship".
For those who are able and have the stamina for it, this is a very good time to invest -- 401K or otherwise. Young folks especially are unlikely to see lower stock prices in their lifetime. Truly, the chance of a lifetime.
All you need is not to have had most of your net worth essentially erased by previous "downturns" (in the last 8 and 1/2 years and before this most recent "unpleasantry") and by attempts to keep your business alive to enable you to replenish some of that net worth.
Still one of the things that has enabled me to survive all of this time as intact as I remain, has been paying down credit card debt, now only 30% of where it was a few years ago, and with full zero balances in plain sight. Our only active credit card is mostly used for business expenses, with cash or check being the usual mode of payment. My grandfather taught (and I didn't listen until a few years ago, "you can want something, but if you don't have the money on hand to buy it, save for it").
I got into a habit a long time ago not to carry a credit card balance at all. It is always best to live BELOW your means.
That tells me that you either haven't started a business and needed credit cards to keep above water when investor dollars dried up...OR...you've been extremely lucky in new companies...AND that they were always well funded.
Anyone getting into investments right now should understand that we may not have seen the bottom of the market yet. I personally think that it is entirely possible that we could see the DJI go below 5000 if we don't stop getting more bad economic news.
That isn't to say that people are crazy to invest right now, but that they need to be in it for the long haul and not get scared out if we see a few more panic selling days before we see a sustained and wide spread rise in the market. I also think that people need to focus on quality companies with strong fundamentals over time that are likely to survive, and prosper when the market does turn around rather than betting on companies that are riskier. While risky investments may get better returns they can also deliver huge losses if the gamble doesn't pay off. And when things are bad, I don't think gambling is a good idea.
At time I held NASD licenses so I'm "qualifed" in this department ;~)
Anytime the market is down is a good time to invest -- especially if hitting 5 or 10 year lows. Of course you need a long term time line for any investment in securities. Historically, the longer the better.
There is a huge difference between "gambling" and investing.
I dunno... There are a lot of companies that are wobbly enough right now that investing in them is probably riskier than gambling... To be fair, a lot of those companies would be dangerous even in a rising stock market.
What I'm talking about is I've heard of people who dived into stocks in January assuming the market couldn't go any lower and are now suffering from buyer's remorse. My personal guess is that we won't see the bottom of the market until late this year or maybe even early next year. And I don't expect much in terms of recovery anytime soon, more likely things will level out and what growth comes may be very modest and very slow. Ben B. pretty much admitted that was likely in his 60 Minutes interview today.
If someone bought securities in January expecting significant growth by March 15, they are suffering from stupidity, not "buyers remorse."
Guessing about market bottoms or market tops is futile, pointless, and costly. That's exactly where people fail.
If you don't feel comfortable picking single stocks, then use mutual funds and leave the driving to someone else.
Securities -- stock or mutual funds -- are a long-term proposition. If you don't have a five to ten year window, don't put your money in securities -- that's the right advice anytime. Now and always.
That said, the old adage remains true, "buy low; sell high." It's low now and it doesn't matter if it's "bottom" or not -- the rule is simply "low." If you have the stomach for it and have money that you don't need for ten years, then do it now.
When it goes up, sell. "High" doesn't mean top, it just means high. If, in 5 or 10 years, you've made a reasonable return on your money (10%, 15%, or whatever), then sell. Put the money someplace safe and get on with your life with no remorse at all.
Anything else is actually "gambling."
I am an ex-broker. Voice of reality here.
"Reality" is sorely needed.
"Bulls make money, and Bears make money sometimes, but Pigs get slaughtered."
Good platitude. Fact is that all of the technical analysis instruction was strong on "when to buy" and wasn't strong enough on "when to sell."
No one taught when to sell! All of the "technical" advice I learned was when to buy.
Though 5000 might be the right bottom, I have always seen a tendency for people to fight again downward spirals. The last week might have indicated a bottom? Citi & BoA are both reporting profits!
Especially if you can afford to buy real estate!
If you think you job could be in jeopardy, is it better to pay down debt or build up a bigger nest egg in preparation ?
You need both.
In one way paying down debt is equivalent to building reserve funds. It reduces your income needs -- that means your reserve fund amount can be less.
Suppose you are paying 10% or 12% on a loan or 20% - 30% on credit card debt. On your reserve fund (savings account, money market or CD), you are getting 5% or less. That differential will financially kill you.
For every dollar you put in the reserve fund instead of using it to pay down debt, you're losing money -- as much as a twenty cents (20%) on every dollar if it's high interest debt. That's the difference between interest paid and interest you could be receiving. It's not a good value proposition. You can't ever get ahead paying 25% interest and earning 5%.
To make matters even worse if you are laid off, the income stream dries up, and you start using your reserve fund to make loan or credit card payments, another dime or quarter is going just to pay interest further reducing the value of your reserves.
That's as much as 50% of every dollar in the reserve fund lost to interest that could be going to food, clothing, and the job search.
Get rid of higher interest (credit card) debt first -- all of it. Then start reducing the lower interest (bank loans, mortgage, etc) debt load.
I completely agree that it is important to reduce the highest rate debts first. It amazes me how many people fail to do the simple math to realize what you are talking about when it comes to interest earned on savings vs. interest paid on debts.
The only exception would be if bankruptcy is imminent, and that is because things like credit card debt are usually unsecured (meaning they can't repossess your stuff like mortgage and auto lenders can). That difference matters a lot less now than it used to be due to changes in the bankruptcy laws a few years ago.
Not exactly sure why, but the banks have been giving me these 0% credit cards which I have used to roll-over higher interest credit card debt. Some have had balance transfer fees that when calculated over the 15-18 month term of the "introductory rate" still kept the actual rate in the 1+% range. The last one was a pure 0% with no transfer fee. I've been doing this now for almost 5 years. All of this has enabled me to reduce what was a burdensome level of credit card debt to a more manageable and soon to disappear amount. On the negative side, because I haven't cancelled the cards even though they are dormant, my credit rating has fallen because I have too much available credit (this will be fixed soon enough).
I've done some of the same thing. As you note, you have to read all the fine print, but contrary to traditional advice, "borrowing from Peter to pay Paul" can actually be prudent if "Peter" gives you a much better interest rate. One of the .com startups I worked for in the past built a credit marketplace web site which also offered a lot of educational and self-help information on such topics including such things as payoff planning tools (so you could see "what if?" on various debt payment schemes), payment optimizers, and tools to help analyze things like available credit vs. total credit to maximize credit scores. Unfortunately that company, like most other .coms cratered. The story behind that is a long one, but it is a shame that a lot of the cool stuff that was built like that has been lost.
This is actually a good idea to stay afloat if you can do it without incurring huge fees.
I think it is far more important to pay down debt if you have any. Few safe investments right now will reliably beat the guaranteed return of interest savings from debt reduction. The exception might be mortgage debt, depending on the interest rate and personal tax deduction situation. If a nest egg is being kept in preparation for being laid off, then it needs to be kept in readily available funds that are also safe, which limits options almost to choices like a savings account which these days have very low yields.
I believe in the power of "and." I think it is best to reduce your burn rate now in any way you can. Put that money into reducing your debt, and hopefully you will have a little bit of a nest egg too.
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