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You are here: Home / Open Threads / 401(k)

401(k)

by Michael D.|  October 9, 20083:16 pm| 62 Comments

This post is in: Open Threads

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I just tripled my 401(k) contibution to 24% of my salary. I can’t afford it, but I also can’t believe how cheap this stuff is now. I’ll make the cuts elsewhere to make up for it.

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62Comments

  1. 1.

    Foxhunter

    October 9, 2008 at 3:20 pm

    That *almost* sounds like a Don Lapre pitch….

    …you can make millions off of tiny little ads….

    …but probably a solid move on your part.

  2. 2.

    BombIranForChrist

    October 9, 2008 at 3:20 pm

    Good move. Buy low, sell high. We may still have a ways to go down, but things are looking verra cheap if you are shooting for the long term, which I assume you are with a 401(k).

    I am trying to talk my wife into it.

  3. 3.

    Graeme

    October 9, 2008 at 3:22 pm

    Smart move. I was just lamenting the fact that I can’t do more right now, myself!

  4. 4.

    Mr Furious

    October 9, 2008 at 3:23 pm

    This morning on the radio, they were actually saying the market was primed for a rally today…

  5. 5.

    Mr Furious

    October 9, 2008 at 3:24 pm

    Yeah, and today I had to invest heavily in Honda auto parts…

  6. 6.

    Foxhunter

    October 9, 2008 at 3:25 pm

    @Mr Furious:

    Nouriel Roubini is predicting DOW 7000®.

    Scary times.

  7. 7.

    Comrade Stooleo

    October 9, 2008 at 3:27 pm

    I was thinking the same thing, but I’m planning on waiting 3 to 6 months.

  8. 8.

    Hunter

    October 9, 2008 at 3:29 pm

    re: roubini…
    here’s a video of his prediction
    the 401k thing is truly only good if you don’t need your money for AT LEAST 5 years

  9. 9.

    Adam Freeman

    October 9, 2008 at 3:30 pm

    Never buy when the market is still going down. Wait until it start going up. It will still be cheap then.

  10. 10.

    gopher2b

    October 9, 2008 at 3:31 pm

    Good man. I stopped funding my 401k at the end of May. I’m starting it back up this paycheck.

  11. 11.

    Walker

    October 9, 2008 at 3:33 pm

    Catching a falling knife. Wait until the banks stabilize. Yes, you will not get the absolute bottom, but there is a long road for turn-around.

  12. 12.

    Michael Demmons

    October 9, 2008 at 3:33 pm

    Graeme: I am in a bad situation right now. My partner lost his job 3 weeks ago, so I am spending for two. Wonderful that he has no loans. I figure he will only add $100 a month for groceries a month, and I may have to give him $60 a month for gas. I can do that, fortunately.

    But I can’t ignore how cheap things are. I am giving up a lot of stuff for the next few paychecks to do this. I think it will be worth it.

  13. 13.

    Jeff Garber

    October 9, 2008 at 3:33 pm

    Are we allowed to at least mutter, now, the sentence "The sky is falling," if, for instance, we promised we’d mutter it under our breath?

    The baby’s napping.

    I don’t think he’d hear.

  14. 14.

    Foxhunter

    October 9, 2008 at 3:34 pm

    @Hunter: and what is that dumbf*ck author of DOW 36000 doing today? Oh yeah, he’s a senior economic advisor to McSame.

    Oy.

  15. 15.

    Billy K(hrushchev)

    October 9, 2008 at 3:34 pm

    Man, I am wishing I had some money to buy stock right now – especially Apple.

  16. 16.

    MBunge

    October 9, 2008 at 3:36 pm

    "I just tripled my 401(k) contibution to 24% of my salary. I can’t afford it, but I also can’t believe how cheap this stuff is now."

    My house is on fire and I just poured gasoline on it. Sure, it’ll burn down quicker but just think how nice my new house will be!

    Mike

  17. 17.

    Juan del Llano

    October 9, 2008 at 3:40 pm

    I wouldn’t know a 401(k) if it bit me in the ass. 63 years old, no health insurance, renting, no savings, etc. etc., so I shouldn’t even be in on this discussion.

    On the other hand, you could regard me as being ahead of the game. :-) I mean, don’t you think ANY notion of "retirement" has permanently gone out the window by now? Hell, long ago. People should do what they want to do right now and forget about the stupid marketing bullshit about white-haired Viagra addicts prancing along a beach…

    The world has changed. This unsustainable greedfest we’ve all been part of for so long is dead and starting to stink. Things will be very, very different down the road, and that’s a probably good thing.

  18. 18.

    Cris v.3.1

    October 9, 2008 at 3:42 pm

    Yes, Mike, contributing to your 401(k) exacerbates the credit crisis

  19. 19.

    thomas

    October 9, 2008 at 3:43 pm

    I have my automatic contribution set at 5%, which is the max for company-match at my firm. But I plan to direct my entire bonus into my 401(k).

  20. 20.

    Charity

    October 9, 2008 at 3:43 pm

    On a happier off-topic note, my 68-year-old uncle — conservative, Catholic, registered Republican — sent around a well-written and polished email about why he was voting for Obama this year.

    I only wish he were still living in Philadelphia.

  21. 21.

    slaney black

    October 9, 2008 at 3:44 pm

    Felix Salmon’s saying (paraphrase) buy the shit out of resource stocks. If Salmon’s saying buy and Cramer’s saying sell, you just know it’s the right thing to do.

  22. 22.

    NonyNony

    October 9, 2008 at 3:47 pm

    My house is on fire and I just poured gasoline on it. Sure, it’ll burn down quicker but just think how nice my new house will be!

    Actually, the financial advisors are saying that if you’re young and patriotic, what Michael’s doing is the right thing to be doing. Keeping as much money as possible in the market will help with the recovery and if you’re young you’ll be snapping up some long term deals right now.

    Left unsaid is that if you’re old and/or unpatriotic you should pull all of your money out of the market entirely and stuff it in a mattress.

  23. 23.

    jibeaux

    October 9, 2008 at 3:50 pm

    Still great, Charity. PA’s not looking all that close right now, anyway. I was working on my Republican dad a little bit, he’s a federal contractor. I thought for sure McCain’s promise to put him out of work entirely might make him change his mind, but no go. I figured if that didn’t do it, probably nothing else would and gave up. My time would be better spent working on overt racists.

  24. 24.

    Brian J

    October 9, 2008 at 3:50 pm

    As Dean Baker said yesterday, these prices are a huge gift to the younger workers of this country, except for those who have trust funds. I wish I had more money to invest, but alas, I bought a (used) laptop last month and got off the phone with my mechanic a little while ago, so the $800-1000 that might have gone to buying ETFs will now to go him.

    This is a topic that I really need to learn more about. It seems like every time I try to make a move, I discover a concept that trips me up.

    I’ve invested about $50 a month since the halfway point of my junior or senior year or college–two or three years this December or January–through Sharebuilder. I also enrolled in my company’s 401K program, but because of the deductions for my health insurance, no money was being taken out. I think I discovered a trick, because last time, I sent more money in than was necessary when my paycheck didn’t cover the cost, and sure enough, there was a deduction for the 401K when I got that check.

    Like I said above, I wish I had more to invest, and I wish I knew more about investing. As much as I see certain ETFs tanking each day, they are supposedly high growth/high risk vehicles. Since I am very young, I figured I would put my money there right now. It’s tempting to sell it off each day, but I realize I’d be pissing even more money away from the transaction fees.

  25. 25.

    mapaghimagsik

    October 9, 2008 at 3:50 pm

    Investing in a 401K is rarely a bad idea, especially if you get company matching funds.

    At the same time. I don’t anticipate this is like one of those regular "dips" and while we might see the highs we saw before, it might be because of inflation.

  26. 26.

    Dave

    October 9, 2008 at 3:53 pm

    I would kill for a couple of million to invest right now.

    I am just thankful for two things: that I am young enough for my 401(k) to actually benefit from this and that my dad annuitized his 401(k) when he retired last year.

  27. 27.

    MBunge

    October 9, 2008 at 3:55 pm

    "Yes, Mike, contributing to your 401(k) exacerbates the credit crisis"

    "Actually, the financial advisors are saying that if you’re young and patriotic, what Michael’s doing is the right thing to be doing."

    1. Exacerbate? No, but there’s absolutely no reason to believe the market is at or even near a bottom. And not to get all Vizizni on everybody, but it is inconceivable that the recovery from this mess is going to be anything but very, very, very, very, very, very, very slow. It could take you 5 years to make back what you lose in the market in the next 6 months.

    2. The market should exist to service and benefit investors. The fact that investors now seem to exist to benefit the market is one of the basic reasons things are going to hell now.

    Mike

  28. 28.

    Michael Demmons

    October 9, 2008 at 3:56 pm

    Jim Cramer is entertainment. Don’t pay any attention to him. The only person Jim Cramer has managed to make right is…

    Jim Cramer.

  29. 29.

    crayz

    October 9, 2008 at 4:00 pm

    I’m not sure I’d go all in right yet. I sold off all my stock a couple weeks ago, after taking a beating the past year. I had a couple friends say they thought it had bottomed out, but I couldn’t stand the volatility (and may well be using much of this money soon)

    The rest of the week the market ended up and I felt a little dumb for selling. Since then the market has cratered and I don’t feel so dumb any more

  30. 30.

    Michael Demmons

    October 9, 2008 at 4:04 pm

    I’m betting the bottom is tomorrow. But if it’s not, I’ll still be in the black – eventually.

  31. 31.

    Shinobi

    October 9, 2008 at 4:06 pm

    I haven’t been contributing to my 401k, but I’ve been thinking about starting. Depending on how the elections play out I might start putting money in before January.

  32. 32.

    r€nato

    October 9, 2008 at 4:07 pm

    this is nuts the way the market is going. Companies are still profitable, people are still going to work. This is just irrational panic… isn’t it???

  33. 33.

    Cris v.3.1

    October 9, 2008 at 4:10 pm

    I agree with MBunge’s second post. The problem with your first one was that your metaphor was a poor fit.

  34. 34.

    Joe Buck

    October 9, 2008 at 4:12 pm

    Careful, Adam Freeman.

    In the aftermath of the 1929 stock crash, the market repeatedly had mini-rallies, each of which convinced some investors that the bad times were over and it was time to buy "low". Each time, the rally was followed by a deeper downturn, until, by 1932, the Dow Jones had dropped from 381.17 all the way to 41.22. Everyone who tried to buy back in lost his shirt.

    Take a look at

    http://stockcharts.com/charts/historical/djia19201940.html

    and in particular look at all of the promising upturns between the crash and the beginning on 1933.

  35. 35.

    Punchy

    October 9, 2008 at 4:12 pm

    I may throw a K or 2 into my Ameritrade acct and do some day trading. Fig if the market’s gunna rally, it’s all or none, and therefore i suspect a huge (+500) rally in the next few days.

  36. 36.

    amorphous

    October 9, 2008 at 4:13 pm

    Does buying a Powerball ticket equate to investing in one’s 401(k) right now? Because there is a convenience store near the bread line.

  37. 37.

    Brian J

    October 9, 2008 at 4:13 pm

    At the same time. I don’t anticipate this is like one of those regular "dips" and while we might see the highs we saw before, it might be because of inflation.

    I don’t think anybody is predicting that the stock market is going to hit a permanent low and never recover, so I am not particularly nervous.

  38. 38.

    raff

    October 9, 2008 at 4:17 pm

    An honest question:

    What’s going to happen to people that are retiring right now, or in the next year (or two)? I’m not familiar with the mechanics of a 401(k), but I would think these people will suddenly be faced with a retirement plan that’s a lot less than what they forecasted less than a year ago.

  39. 39.

    MBunge

    October 9, 2008 at 4:18 pm

    "I’m betting the bottom is tomorrow. But if it’s not, I’ll still be in the black – eventually."

    So, are you going to start eating like a pig, drinking til you pass out and playing Russian Roulette every night because you’re going to end up dead eventually?

    I’m no financial genius by any means, but even my shallow, casual understanding tells me that the market we have after this mess isn’t going to resemble at all the market we had the last 25 years.

    Mike

  40. 40.

    Buck

    October 9, 2008 at 4:18 pm

    I put $1,500 in a gold mutual fund way back in the early 80’s. I saw the market lose about 25% of its value in one day. I saw the gold fund go down in value to about $325 with all of the experts around me begging me to sell. I said to hell with it and kept it. I have never put another damn dime into the thing.

    Last I looked the piece of paper I get in the mail from time to time said it was worth over $25,000.

    It may take 5 years to make the money I lose in the next few days back but hell I can’t retire for another 15 years at least.

    And I have never saved one penny that I now wish I would have spent but I have spent a shitload of money that I wish I would have saved.

  41. 41.

    J. Maynard Gelinas

    October 9, 2008 at 4:21 pm

    Just today I started moving my allocation back in to a no-load Index fund in $10,000 increments. Wait a few and see how the market reacts. Then another $10,000 drop back in. Wait a bit more, play that game again until I’m back in at a rational stocks/bonds/treasuries mix for a 40yo man.

    I’ve been out and sitting in US Treasuries since late ’06. I’ve lost nothing but "opportunity cost" (heh) … yet.

    Just remember, playing the dollar cost averaging game down a market crash is absolutely insane. But getting out before-hand and then buying back in incrementally – testing the waters – to reduce losses is a good idea.

    Also: I note that it took 30 minutes to confirm my transaction this afternoon at Fidelity.com. Think about that. I bet there were a bunch of people who were unable to buy or sell due to their automated system crapping out.

    Can you imagine calling a stock broker and being told, "I’m sorry, I can’t arrange that sale for you – our computers are down." I really fucking hate Fidelity.

  42. 42.

    LarryB

    October 9, 2008 at 4:22 pm

    I have 401k envy! Joining the whiners club, with 2 children in college. I’m kid-proud but cash poor.

  43. 43.

    eglenn

    October 9, 2008 at 4:26 pm

    I moved both our 401k’s into the ‘cashiest’ option in May/June (Dow 12k?). One of my few bright investment moves.

    Now, all I have to do is figure when to jump back in.

  44. 44.

    chopper

    October 9, 2008 at 4:28 pm

    i reallocated my TSP to bonds a while back. sometime i’ll move it back to the funds that track the market, but not until i’m sure we’ve hit the bottom.

    i don’t think we’re at the bottom yet.

  45. 45.

    The Populist

    October 9, 2008 at 4:28 pm

    Mbunge, agreed. The markets will resemble what I grew up watching where CEOs answer for their mistakes and nobody gets golden parachutes.

  46. 46.

    Turbulence

    October 9, 2008 at 4:31 pm

    What’s going to happen to people that are retiring right now, or in the next year (or two)? I’m not familiar with the mechanics of a 401(k), but I would think these people will suddenly be faced with a retirement plan that’s a lot less than what they forecasted less than a year ago.

    Sucks to be them? More seriously, when people retire, they don’t cash out their whole 401K on the day they retire; they just start drawing down, cashing small chunks of it as needed. So people retiring now will get screwed on the money they pull out of their 401K while the market is in bad shape, but that may be a small fraction of the total amount they have saved.

    Also, people who are planning to retire relatively soon really should have started changing their asset allocation from riskier (more volatile and higher returns) to safer (less volatile but lower returns) a few years before they started retiring. People can invest in special time based funds that gradually do the transition for them, but any sane financial adviser will tell you to do the same thing. Smart retirees who had started moving out of stocks and into bonds and other safer assets should see their portfolio value relatively untouched by the current crisis.

    The people who are really screwed are those who have very little savings and were depending on selling their house to get the cash needed for retirement.

  47. 47.

    Fledermaus

    October 9, 2008 at 4:35 pm

    I’d be careful about trying to catch a falling knife Michael, during the Great Depression the stock market lost almost 90% of its value from 1929 to 1932.

  48. 48.

    Grumpy Code Monkey

    October 9, 2008 at 4:40 pm

    Just checked my 401(k).

    -42.5 % change in market value YTD. The big loser was the company stock: -58% YTD.

    I didn’t get serious about saving for retirement until fairly recently, and I’m already closer to 50 than 30, so this is a little nerve-wracking. The rational part of my brain realizes that this isn’t permanent, and that I will recover that value eventually. Unfortunately, the part of my brain that’s actually in charge most of the time is going AIIIEEEE!!!! Any setback in growth just makes me jumpy.

  49. 49.

    LarryB

    October 9, 2008 at 4:44 pm

    @Fledermaus:

    I’d be careful about trying to catch a falling knife Michael, during the Great Depression the stock market lost almost 90% of its value from 1929 to 1932.

    That’s the beauty of regular investment schemes like 401ks: Averaging costs. Even if John hasn’t hit the bottom exactly, if he invests every month, he will be investing when the bottom hits. Also, I’m still somewhat hopeful that we can avoid the worst. It’s possible that the whole house of cards will collapse, but governments are clearly more ready to intervene now than they were in 1930. As I recall, the great depression was less severe in Europe than America because, unlike us, they pumped money into the economy after the collapse.

  50. 50.

    PattyP

    October 9, 2008 at 4:48 pm

    I moved large chunks of existing stock investments into less risky stuff in order to protect them somewhat, but left my future 401k allocations as they are in order to buy cheap. I only wish I’d done it a month ago. :-/

  51. 51.

    Michael Demmons

    October 9, 2008 at 4:51 pm

    @Grumpy Code Monkey: Never, EVER, invest in your company’s own stock… That’s so bad on so many levels.

  52. 52.

    TheWesson

    October 9, 2008 at 4:53 pm

    Wait until Time or Newsweek or some other weekly newsmagazine announces on its cover that this down market is here to stay

    Then that is the time to buy.

    Example:
    Time cover June 2005 – Real Estate Boom – bubble ends within a year.
    Time cover December 1999 – Jeff Bezos (Amazon) is "Man of the Year". Dot-com bubble ends three months later.

    I predict this should work almost as well for a panic as for a bubble. Wait until "permanently low stocks" is a trendy meme announced in the mass media. Then the last (most foolish) knife catchers will have capitulated, and it is time to buy.

  53. 53.

    AkaDad

    October 9, 2008 at 4:55 pm

    I’ve never invested in the stock market, but if I were to invest, it would be in alternative energy stocks. Obama wants to invest 150 billion in alternative energy over the next ten years.

    But what do I know, I still believe real estate will always be the best investment.

  54. 54.

    Sasha

    October 9, 2008 at 5:05 pm

    The idea is that it’s best to buy when the market is low, but on its way up. Otherwise, you think it’s low now, it could get a lot LOWER first.

    Better to pay more than rock-bottom prices because the market is on its way up, than to pay more than rock-bottom prices because the market is still on its way down–because in the latter situation, you really down know how long rock-bottom is going to be. Also if you invest now, you don’t know which stocks are going to become $0… when this is close to over, you will know that companies may having a tough time but the ones that are going to fold have already folded.

    It’s also pretty safe to catch the beginning of the upswing, because the upswings usually start slowly, because investors are still skittish and pessimistic. So sure you won’t catch the absolute cheapest prices, but if you’re paying attention, there’s time.

  55. 55.

    Kamishna ya Watu Xenos

    October 9, 2008 at 5:30 pm

    The idea is that it’s best to buy when the market is low, but on its way up. Otherwise, you think it’s low now, it could get a lot LOWER first.

    Unless you do it as a pro, timing the market is a suckers game. That said, I nearly pulled the remaining half of my 401(k) out of stocks in August, but did not trust my instincts.

    I have decided to stop thinking about the bottom, but to wait until the deleveraging process comes to an end. In other words, when the big whales stop thrashing about the pool and sending the indexes up and down dramatically in the last half hour of trading, swamping minnows like me trying to get to a sensible position based on fundamentals.

    When those guys are beat, then mutual fund investors can go back to buying and selling without end of day prices being completely unpredictable.

  56. 56.

    Cris v.3.1, Country Last grenade chucker

    October 9, 2008 at 5:35 pm

    But what do I know, I still believe real estate will always be the best investment.

    I don’t know shit, but I do know that real estate is a tangible asset. My home value might be leaping about like Donald O’Connor for all I know, but as long as I can pay the mortgage (which is fixed btw) I know I have a place to sleep.

  57. 57.

    maxbaer (not the original)

    October 9, 2008 at 6:13 pm

    A lot of people here seem to be pushing for timing the market. Especially with a 401K, I don’t think that is going to work because you’re only putting in a relatively small amount every week.

    I believe you really have to keep to it no matter what the market does. For those of us who have at least a few years to retirement (and a lotta faith) a 2 or 3 year bear might be good. As long as we keep our jobs, that is. For those already retired it has to suck big time, though.

  58. 58.

    Jess

    October 9, 2008 at 10:12 pm

    I’ve never invested in the stock market, but if I were to invest, it would be in alternative energy stocks. Obama wants to invest 150 billion in alternative energy over the next ten years.

    I was thinking the same thing. It would be great if the Obama administration would set up some sort of insured/govt. backed alt. energy investment portfolio for those of us who would like to support the program and have a reasonably safe place to put our money.

    I admit it, I’m totally ignorant about inventing and all the correct lingo (since I’ve never had money to invest), so please don’t be too mean if what I just suggested sounds totally ridiculous or old hat. But I would like to know what y’all think about a plan like that.

  59. 59.

    Jasper

    October 9, 2008 at 11:56 pm

    Just thought I’d mention Roth IRAs. If you don’t have a match at work, or can save more than the match at work, a Roth might be superior, since you have no taxes on withdrawal, as opposed to ordinary income taxes when you withdraw from a 401(k).

    Sure, you give up the deduction for your 401(k), but most people spend the tax savings anyway. And we might never see income tax rates this low again given our debt, the coming Trillion deficit, and huge medicare costs coming, etc. and a Roth is provably superior if tax rates go up overall, or you’re in a low rate now because you’re poor but expect to be rich at some point down the road.

    So all you poor youngsters, save NOW in a ROTH, and don’t worry a bit about what you put it in. An index fund works great, just keep at it….

  60. 60.

    BrianZ

    October 10, 2008 at 12:47 am

    It’s my sense of history that’s making me hold back. I’m putting nothing into the market until the month of October is over and done with.

  61. 61.

    Comrade Tax Analyst

    October 10, 2008 at 3:26 am

    Our plan at work was changed from a SIMPLE that matched contributions up to 3% to a 401(k) that only contributes 1-to-4, with their max contribution being $2. So I was looking at putting in $8 of mine to get a free $2 from the boss. Well, this was in April of this year and I was smelling big, big trouble coming…and coming real soon. And still, I find myself shocked by the ferocity of this storm. Anyway, I’m 58 and pretty much risk averse, so I wasn’t all that jazzed about that offer, so I stopped contributing. I was OK with "3-for-3", because even if what I ended up with lost half it’s value I was more or less not losing cash, and getting to defer a bit of taxable income in additional to making the max Traditional IRA contribution in a CD each year for a few years now has been working out decently. The only that sucks about that now is that it’s about due for renewal…I got 5.22% when I renewed last year. I’m guessing it will be around 1% this time around. BTW – my holdings from the "3-3" plan have "Only" lost about 6 or 7% for the year…so far…which I still thought sucked…until I looked at the "risk averse" investments they made for me…28% Mortgage Securities…God damn! I really should have paid more attention to those details, because I really did see serious trouble for that crap well in advance…I under-estimated it quite a bit, but my thinking was in the ballpark.

    But for the younger folks, well, yeah…it makes pretty good sense to start putting money into 401(k) stuff if it’s available to you, especially with a good matching program. Just keep in mind that companies DO go out of business, so just because something is "cheap" now doesn’t mean it will automatically be a solid investment for you in the distant future. Old fogies…eh…not so much of a thrill from my perspective. I’m sticking with FDIC insured stuff…yeah, I know that with inflation this avenue will automatically suck away a certain amount of value, but that’s baseball or whatever, isn’t it?

  62. 62.

    chopper

    October 10, 2008 at 8:20 am

    really, putting money in a 401(k) and an ira is always a good idea as long as you have some control over it.

    move the money into bonds or something that currently provides a return. when the market turns around you can switch it and instead of starting with a handful of cash you have tons of money to put into a higher-yielding segment of the market.

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