RE: Here's hoping you didn't miss the bottom of the market...

I have no clue if the Sagarin or Flagpole scenario will come true, which is why diversification is the key. Real estate, fixed income, precious metals, stocks. Do it all.

Letsrunner wrote:

I have no clue if the Sagarin or Flagpole scenario will come true, which is why diversification is the key. Real estate, fixed income, precious metals, stocks. Do it all.

You can be diversified all within mutual funds -- spread the funds around to be in different sectors, or buy index funds. Real estate is for people who are already doing 15% toward retirement accounts and are completely debt free. Fixed income is for people closer to retirement or in retirement. Precious metals are for the greedy and stupid -- NEVER a good play to be greedy or stupid.

Sagarin wrote:

Flagpole, I jest somewhat, but I don't want investors to get lulled into complacency, believing that the next 20 years have to be just like the last, with very little grounding in formal economics. The be careful what you wish for phrase comes to mind for all of the bushy-tailed 20-somethings on here who voted for "change."

Jesting is fine.

Lots of people other than 20-somethings voted for Obama brother. Wanda Sykes last night on the Tonight Show said that black people in the US should thank Bush for getting Obama elected because if he weren't so incompetent that Obama never would have been elected. She wanted instead of a Black History Month a Bush Month! Bush made it pretty easy for people to want to vote for something different. His skeptics are going to be VERY surprised at how conservative he ends up being. Unless he pulls a Bill Clinton (which I don't think he will), with where the US is in the world today and how our economy is doing, assuming he gets elected to a second term, he could go down as one of our greatest presidents ever. The ducks are lining up for that for him, and I believe he has the sense to make enough good decisions to enable to ducks to line up and stay in line.

I'm not meaning to turn this into a political thread, and I'm not sure why Bush's name is always uttered in predictable fashion if any degree of legitimate skepticism is uttered toward the new dynamic (as if though such a critique was a ringing endorsement for Bush II). Bush was incompetent, yes, though he was more a climactic reflection of American society's ills, gluttony, and pains than a cause of them (lots of poor financial, economic, and foreign policy decisions in the lead-up to Bush II -- in fact, Obama 2009 has some degree of parallel to Bush 2001 in inheriting a massively bursting bubble, an economic contraction, and the blight of the ramifications of terrorism and 50 years of foreign policy missteps). But he did little to rein in the excess of 25 years and even exacerbated it.

I would agree that Obama looks to already be disappointing his liberal constituency with his cabinet picks and potential rescinding of the tax hike on capital gains (to the dismay of all on here who provided fervent support for such hikes and Krugman idealogy). But that is a far cry from one of the greatest ever, and just another premature statement akin to Dow 12,000 is a good time to buy or OSU 2006 may be the greatest team ever assembled. Obama is not my major concern anyway. It's the amateurish legislative branch that not only enabled Fannie to lever up MORE than the private sector WITH a government backstop (hard to believe Barney Frank, Christopher Dodd and Nancy Pelosi all even still have a job) and contributed to the train wreck lacking good foresight and oversight, but also passed the TARP without solid, fundamental economic justification and continues to attempt to put a finger in the dyke with more obscene handouts. But the Obama doctrine of redistribution is a major concern and a long-term economy killer, yes.

Dude, you are putting words in my mouth. I didn't say Obama was the best president ever, only that things are lining up for him so that he could potentially be thought of in that way. The US has to be in a bad spot for a leader to be though of as great if he helps lead us out of it. I'm not saying it is his destiny, only that it is a possibility.

A 12,000 DOW when the DOW had been decently above that for several months was a good time to buy. Long term I still maintain it was. We're back over 9,000 today. By the time I retire, those purchases at 12,000 will be great.

Regarding OSU in 2006, it was all conditional. I said at the time that IF the Buckeyes managed to beat Florida in the title game that they HAD to be in the discussion as the best college football team ever. They lost, so they can't be considered, but IF they had won, they would have been the only team EVER to play and beat three No. 2 teams in the country in the same year (two of them undefeated at the time including the final regular season game, meaning Michigan had played a LOT of teams and was still unbeaten). In addition they had the Heisman Trophy Winner at QB, the nation's best defensive player in James Laurinaitis, two of the best tandem wide receivers ever (one of which - Ginn - was one of the best college return men ever), a whole host of star defensive players plus a great special teams group. To not accept that had they won that game that they had to be in the discussion as the best college football team ever, that is just to be a Buckeye hater.

Regarding Bush, he was more than just a reflection of bad times. He's a horrible leader. Where has he even been the last 12 months? We hardly ever see him. Americans, even if they don't agree with a President, want to HEAR from him from time to time, ESPECIALLY when things are going bad. Now, there are reports that Chaney would take him aside privately after cabinet meetings and while having said nothing while everyone was there would tell Bush the direction he should go. What a POOR leader to allow that. If conservatives want to be able to continue their conservative ways (and not all of their ways are bad), then they need to elect GOOD candidates. Wanda Sykes was right, Obama should thank Bush for giving him this opportunity. Bush has done more to further the state of the black American than anyone else ever. Fortunately I think Obama is up for the task -- bad decision allowing Rick Warren to do the prayer at the swearing in ceremony, but hopefully he won't continue that relationship. Just impossible to mention Obama's stunning victory without talking about Bush's horrid leadership. I look at George Bush and I think -- well, he's just about as smart as I am, and quite frankly, that's not good enough (Palin and McCain most likely are not even as smart as I am, and that's VERY scary; look at their college records -- abysmal). People who run this country should be the best of the best, and I'm not talking top 2%; top 2% is not that impressive. I'm talking top .0001% (or some such thing) -- really the cream of the crop. Obama is there. I'm ready to try intelligence again -- this time hopefully the smart guy won't play hide the cigar with an intern.

Definitely not defending Bush's leadership or advocating for McCain/Palin (who I did not vote for). Simply saying that putting a lot of faith in an unproven, extreme-leftward voting lawyer without much of a record is an exercise in confidence or foolishness that I myself am not willing to undertake, particularly when the legislative branch has already shown itself to be a flagrant piece of that glaring lack of leadership over the past two years, without any repercussions. Oh, and McCain did just as much to get Obama elected as Bush ever did. Still can't fathom how that guy was the nominee.

As I said, this isn't a political thread, nor is it the Flagpole/Sagarin show. Back to the original topic. I share my knowledge to help you in your investment decisions. I sure hope you take some of my commentary to heart and read the links I provide, even if they're long-winded. You need to have as much info as possible and not just cling to a buy-and-hold strategy. Sometimes, being nimble is a strategy. The Obama-inauguration rally is predictably underway, yes. A good deal of caution and prudence is warranted before sending the all's clear signal. Japan has learned nothing from the last 18 years. Have we?

So flagpole,

I am 26 and have a wife and 1 year old son. We can pull together about 2500 now to invest (pushing our limits) or we can wait until about June and have 4k to invest without much strain (after tax return and some savings). If you were me what would you do? Let me narrow it a little bit.

I really only want to do mutual funds.

If I invest now do I do it for retirement and in what Vanguard, which fund?

Should I invest in a college fund?

Should I wait until maybe the market is back up to 10k and then could drop again and take a while to get my money back?

What are your thoughts?

Do NOT try to time the bottom of the market! Apply dollar cost averaging to be safe and secure.

Captain Oblivious wrote:

Do NOT try to time the bottom of the market! Apply dollar cost averaging to be safe and secure.

Good advice. Nice and succint, too.

Flagpole wrote:

If the DOW does a slow climb and ends in 18 years at its high of 14,100, then I will be more than fine. It should do much better than that though.

Keep your hopes up. Then you - might - be back where you were a few years ago, minus taxes.

Good luck.

Being in or out of the market, even in a 401k, should be based on your perception of the risk "x" will happen and your risk tolerance. I don't see that as trying to time the market. If I think there is too high of a risk the market is going to go in the crapper, the fact that I can't time the market doesn't mean the correct answer is that I should be in the market. I generally think buy and hold is a good strategy. However, I also think there is too much emphasis on convincing people on being in the market simply because they can't pick a bottom and might miss the subsequent rebound. Missing the rebound is justified if your opinion is the downside risk justifies not being in the market.

Hmmm...extremely low mortgage rates...application rate very high. Freaky coincidence!!! That and $5 will buy you coffee at Starbucks.

Flagpole wrote:

1) Mortgage applications are up higher than they have been in 5 years.

Mortage applications does not equal mortages.

Blown Away wrote:

So flagpole,

I am 26 and have a wife and 1 year old son. We can pull together about 2500 now to invest (pushing our limits) or we can wait until about June and have 4k to invest without much strain (after tax return and some savings). If you were me what would you do? Let me narrow it a little bit.

I really only want to do mutual funds.

If I invest now do I do it for retirement and in what Vanguard, which fund?

Should I invest in a college fund?

Should I wait until maybe the market is back up to 10k and then could drop again and take a while to get my money back?

What are your thoughts?

Blown Away,

Investing is for people with no debt but for a house. There are some exceptions to that rule, but not many in my opinion. The steps BEFORE investing are:

1) 3-6 months of expenses emergency fund.

2) NO debt but for a house that you have a FIXED RATE mortgage on that take no more than about 25% of your takehome pay.

3) NOW, invest in this way -- 401k up to the company match, then a Roth IRA up to the maximum ($5,000 in 2009) and then back to the 401k. The goal should be 15% into those accounts.

4) Once you are doing all of the above, then it's time to invest outside that if you have the funds. Extra non-retirement mutual funds are the best idea. Jim Cramer is big on stock "baskets" but he warns that in order to pick a stock you need to spend an hour a week PER STOCK doing research on that stock and that you should have 5-10 stocks MINIMUM at a time, so that's 5-10 hours of work per week in order to pick individual stocks. I wouldn't do that unless you LOVE it and that type of research is your hobby.

My advice is to NOT start saving for college until you have your retirement giving set up. Might want to wait a bit too and make sure your kid is up for going to college (no slam intended, but not all kids can go or should go or want to go). I personally have not set up 529 plans for my kids. Instead we put so much into retirement that we can suspend giving to it for a few years if we need to and just pay for college for them out of our income, their working, scholarships, and perhaps some manageable small student loans that they repay later. Don't derail your retirement paying for college.

Vanguard is great for low fees. I do recommend them, but I never recommend specific funds. At your young age, you should be aggressive with your picks. Do some research on REITs even and see if those are right for you -- some amazing advantages with those. Otherwise, you could just pick index funds or spread it out with some there and some in international funds, or do what Dave Ramsey suggests and do 25% each in Growth, Growth and Income, Aggressive Growth, and International.

DO NOT EVER wait for the market to bottom before getting in. Get in when you are ready to get in, and you need to follow those steps above and be debt free except for a manageable house payment before getting in the market.

Good luck.

Flagpole wrote:

1) 3-6 months of expenses emergency fund.

You can, of course, use your Roth IRA as your emergency fund, because you can withdraw any money you have contributed to your Roth IRA at any time for any reason.

There is a psychological benefit to living by the mantra that you should never take money out of your retirement accounts for any reason, but there is no financial reason in this case. In fact, there is a financial benefit to using your Roth as your emergency fund.

Let's say you have only $5000 to save and you put it in a Roth IRA in a very safe place such as an index bond fund. In 5 years you have some emergency and you take that $5000 out. But you still have 5 years of earnings that remain in your Roth IRA. If instead, you put that $5000 in the bank and then take it out in 5 years, you will have much less in earnings since returns will generally be lower and you will have to pay income tax on those earnings.

Is there any real difference, even from a philosophical point of view, between contributing $5000 to your Roth and then taking it out in 5 years, and never having contributed that $5000 in the first place? Not really.

Flagpole,

I have about 4 months worth of expenses saved but I am a teacher so I am pretty confident in my job security. Also due to being a teacher I have to contribute to teacher retirement which gives me my salary when I retire. Basically a 401k but not quite. My wife does not have a 401k at the job she is at.

My question is this. Why dump money into the roth when I can't get to it very easily. Why not put most into a mutual fund that I can get to for things like college or emergencies.

Flagpole wrote:

NOW, invest in this way -- 401k up to the company match, then a Roth IRA up to the maximum ($5,000 in 2009) and then back to the 401k. The goal should be 15% into those accounts.

The only way that would work is if you have self directed IRA's are doing all the investing yourself, AND know what you are doing, not taking foolish advice.

NEVER ever let someone else handle your money, especially not for a fee. And NEVER put your money in one place and let it ride down, down, down, DOWN, to the bottom as suggested. That is a common and terrible mistake, the kind that makes a few people rich when they take the other side of your trades.

Long term investing is for fools, because NO ONE can predict the direction of the market. Though probably those pulling the strings have better ideas than any of us, they are quite often wrong. The key is to ride along with the market AS IT IS RIGHT NOW IN THE PRESENT. Don't wait for the market to hit bottom, don't wait for it to go back up to the top, but simply ride along with the current direction.

Doing as the OP says is like buying now and then waiting for the glaciers to melt until you get back some kind of return, which when you think of it doesn't make any sense. Meanwhile the waves are continually coming in and going back out daily. Getting pieces of those in both directions can give you a nice return, but holding onto pittance in hopes of a galactic event - or dreaming that inflation is profit - gives you nothing.

The method used to come up with the unemployment rate drastically underestimates job destruction. It does not include the frustrated job seekers who are no longer looking for work (there are alot of them), nor does it include people who have lost a full time job and are working part time or had their hours cut from full to part time. The real unemployment numbers are definitely over 10%.

Be careful with "the bottom is in" thinking. We are still in a bear market, don't fall in love with the upside.

From a technical standpoint look at the Nov 21st bottom on the SPY ETF that tracks the S&P 500. The highest volume came on the selloff to ~750, the volume on the recovery has been very light (refelcts a lack of participation in the buying) and most of that recovery has taken place during The Thanksgiving/Christmas period, meaning alot of the big players were already out of the market. This suggests that at the very least we will retest the 750 SPX, 7500 dow area, If it breaks then expect the bottom to come somewhere in the 475-600 area. The volume on the selloff to SPX750 wasn't even that great which shows a lack of panic selling, something which is necessary to form a long lasting bottom.

Don't chase this rally if you are looking to get money into the market. You're going to feel great about yourself if we hit SPX 1,000 and then real dumb when we are back in the 700's.

One more thing, this is just a US recession, the whole world is in trouble and Europe is worse off than we are and that will create headwinds for us that hamper any recovery.

Still not a good idea what you're suggesting. The problem is that people will always keep going back to that IRA and take money out if they think like you suggest. It is supposed to be for RETIREMENT, and it should stay there. The emergency fund is for emergencies, and retirement funds, even the contributions, should be considered sacred cows.