As the probability of a US default goes from zero to non-zero, what the hell is a safe place to put my retirement money for the next couple of weeks. Currently, I’m doing the appropriate thing of having a Target 20XX fund hold my entire 401(K) as I know that I suck as a money manager and that I’m prone to the same biases that cause active investors to traditionally lag the market. However, I also know that those target funds are extremely passive in their management and are not optimized to deal with bizarre events like a political party willing to cause default just for the hell of it. So where do I go if I’m willing to forgo upside but want to preserve principal?
Money markets or short term US bond funds are the traditional flights to safety. But those would be the epicenter of a default crisis as either the US government would not be paying interest or principal on some debts and obligations OR there would be an asterik on any short term US debt issued at the end of October that was backed by the platinum coin option.
Krugman had an interesting model last week on the dynamics of a debt crisis for a country that has an independent central bank, open currency flows and debt denominated in its own currency.
As Romer points out in his notes, this can be reinterpreted as an open-economy model if we let capital flows be influenced by the exchange rate (most international econ types tend to think in terms of stocks rather than flows, but it doesn’t really matter here), so that a lower interest rate leads to currency depreciation. In this case the IS curve includes the effect of a weaker currency in promoting net exports.
Now suppose that investors turn on your country for some reason. This can be represented as a decline in capital inflows at any given interest rate, so that the currency depreciates. If you have a lot of foreign-currency-denominated debt, this could actually shift IS left through balance-sheet effects, as we learned in the Asian crisis. But that’s not the case for Britain; clearly, IS shifts right. If LM doesn’t shift, the interest rate will rise, but only because the loss of investor confidence is actually, through depreciation, having an expansionary effect.
He was talking about the UK in the model, but if we assume the Fed acts as lender of last resort, a political crisis that leads to foreign currency outflows from the US would behave similiarly. Higher local inflation and a weaker dollar to aid in exports and help local providers of trade competitive goods.
Umm…
deep
Guns, ammo, and canned goods seem like a safe investment these days.
HelloRochester
First off, IMHO, you need to get out of the target fund regardless of the political russian roulette: target funds have insane management fees and never ever beat an index fund on a multi-year basis. (The fees on my 401K target funds were ~100X higher than the S&P 500 Index Fund I moved everything into). Frontline schooled me on how fast that sucks market gains out of your accounts and how well they’re marketed. http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/index-funds-the-key-to-saving-for-retirement/
HelloRochester
I’m actually more interested in the opinion of whether it’s a good idea to get a couple thou out of my savings account in case there’s a run on the banks.
raven
I’m staying dumb and holding pat.
WereBear
Ya know, I think this would be an EXCELLENT question for people to call up and ask their Representatives in Congress.
I really really do.
raven
The wheel is turning and you can’t slow down,
You can’t let go and you can’t hold on,
You can’t go back and you can’t stand still,
If the thunder don’t get you then the lightning will.
Steeplejack (tablet)
The dumb part of your question is possibly assuming that we have retirement savings.
sparrow
@Steeplejack (tablet): heh. indeed. I actually got a “real job” just this past year after years of graduate school, and shocked was I to find that they were socking away an amount equal to 10% of my pay into a retirement account! Of course I should have had one all along, but it’s kind of hard when you’re paid $20k per year and then get hit with $800/mo in student loans when you get out. But I’m not really sweating my retirement funds… either this ship will eventually be righted and the markets will go back up long-term, or we dissolve into civil war and eating each other and then retirement is kind of a funny concept anyway.
WereBear
@Steeplejack (tablet): Ah, this twist is to mop up the stragglers who still have some savings!
Snarki, child of Loki
@deep: Yes, guns, ammo, canned goods. Extra gas!
And don’t forget to print out a Google map with the location of the craziest Teabaggers in your area.
That way, when the Zombie Apocalypse rolls into your area, you can point them it that direction. It’ll save on your ammo when the Zombies starve to death.
WereBear
Dibs on our bloghost!
jibeaux
High proof grain alcohol.
So, a good little story, talked to a friend of mine on the phone, a good lefty, who said she has conservative military family members. She said they posted on FB that they were turning off Fox News forever. Their glibness at the effects of the shutdown (“the sun came up! The sky is still there!”) was what did it.
JPL
@raven: That’s my position also but I’m taking a near term risk. I have options that need to be cashed by next June. Do I cash them in now or do I hope they are worth something in the future?
There’s a tax advantage to wait…………… ugh
Linda Featheringill
@HelloRochester:
I don’t claim to know what’s gonna happen but a bit of cash on hand might not be a bad thing.
Where did I bury that coffee can?
Tommy
I don’t give investment advice cause everytime I try to figure stuff out for myself I am wrong. I use a guy at Legg Mason that seems to know more than me.
Suffern ACE
@WereBear: first there was the doughnut and we were happy for many years. Then the cronut captured our fancy for a while. I don’t know if the market is ready for colenuts, IMHO.
Laur
@HelloRochester: No, that is not a good idea.
MomSense
I am so sick of dealing with these constant Republican manufactured crises. I don’t even know what we should all be doing to prepare.
I am reminded of what my grandmother used to say about the depression. “If you didn’t have anything to begin with, you didn’t miss it when it was gone.”
Phylllis
I just signed the paperwork to use a good portion of my 401K to purchase retirement service credit from the state. I’d hoped to hold off until January, but didn’t want to see this piddling amount I’d managed to build back up to disappear into the ether. I’m fairly certain our state retirement is safe, even if it is run by South Carolina. Only because our legislators and governor are in the same system.
raven
@JPL: Shit, we got in this investment thing that seems to be going south. They say don’t get in something you don’t understand but if I understood this shit I wouldn’t have gone to an advisor in the first place!
MattF
Supposing that you are already doing all the prudent things, i.e., no ‘consumer’ debt, saving 10 to 20 percent of income, diversifying asset types, buying low-fee index funds, sticking to a fixed portfolio allocation strategy, I’d sit tight. There may be some higher-order effects insofar as every kind of financial asset (including cash!) will get riskier– so diversification is even more important than it was before– but otherwise we’re deeply into ‘experts disagree’ territory.
sparrow
@MomSense: Funny, my grandmother (still kicking at 94) has said the same thing. She grew up dirt poor on a farm in Kansas and later worked as a maid/cleaninglady/nanny to the “rich” doctor’s family in town. She said the depression was just something you read about in the papers for the most part.
The Red Pen
@Snarki, child of Loki:
I live in Missouri, so I can buy an area map at the gas station and draw a big circle around it.
There was a house near me that had an Akin sign up last year. I swear to the FSM that if there’s a debt default, I’m
torching that motherfuckergoing to yell strong language at it from the sidewalk.cleek
my money guy always tells me, when it comes to reacting to current events: unless you’re retiring this month, you should do nothing.
Tim F.
My feeling: everyone is tied to our economy, so it will be a catastrophe without any clear winner. Eventually the world will reorganize around some other potential geopolitical body, or else we will become a place without any clear axis of stability and devolve into chaos and warlordism while the carbon-choked air inexorably chips away at the land that we can safely inhabit.
Only a chump would make a prediction here, so either buy guns and canned food or jus wait and hope that the vast number of people right there with you will move the idiots to back down.
John O
I’m 54 and LIVING off my 401K, so I have to be careful, and just recently moved 100% of it into the safest vehicle at my disposal…wait for it…a “stable value” fund made up most entirely of Treasuries.
I have no idea if that was the right thing to do, but since I’m reasonably convinced we’re going to default if maybe only for a short period of time, it seemed like the rational thing to do. Hope I don’t get burned, but so far I’m kicking the stock market’s ass, and I expect that to continue until/unless something gets resolved. Which I’m just not seeing.
I moved out of a TargetDate fund. (And my 401K’s fees are very low, fortunately.)
rikyrah
Lawrence O’Donnell about the GOP trying to shut down not the Government but the OBAMA PRESIDENCY.
http://www.nbcnews.com/id/45755883/ns/msnbc-the_last_word/vp/53213073#53213073
Emma
I have always had a very, very varied investment policy for my little fund. My bond holdings are less than 15% of the whole, plus I’ve always kept a good chunk in more or less liquid cash. So I’m sitting tight.
rikyrah
The House GOP has nothing to show for its government shutdown
By Editorial Board,
WHAT HAVE House Republicans managed to accomplish in a week of government shutdown?
Damage the livelihood of millions of Americans? Check. Government secretaries, food-truck operators, cleaners who work in motels near national parks: They’re all hurting.
Waste billions of taxpayer dollars? Check. It costs a lot to shut agencies, Web sites and parks, and it will cost a lot to reopen them. Meanwhile, the House has voted to pay the salaries, eventually, of hundreds of thousands of employees whom it has ordered not to work. That’s an odd way to manage an enterprise.
Interfere with key government operations? Check. The National Transportation Safety Board can’t investigate an accident last weekend on Metro’s Red Line that claimed the life of a worker. That could make future accidents more likely. On the other side of the world, U.S. allies from Tokyo to Singapore are wondering whether they can rely on a nation whose president has to go AWOL from a key summit meeting in their region.
Rattle the markets, slow an economy in recovery, interrupt potentially lifesaving research at the National Institutes of Health? Check, check and check.
Derail the hated Obamacare? Ch . . . — oh, no, wait a minute. That was the GOP’s ostensible purpose for this travesty of misgovernment, but the online insurance markets created by that law opened on schedule last week and continue to operate. In fact, the Republicans managed only to distract attention from the computer glitches that would have gobbled up all the news attention if the government weren’t shut.
http://www.washingtonpost.com/opinions/the-house-gop-has-nothing-to-show-for-its-government-shutdown/2013/10/07/69650016-2f66-11e3-bbed-a8a60c601153_story.html
MattF
@John O: That’s… not my understanding of how ‘stable value’ funds work. I thought they were portfolios of annuities (and therefore immune to market risk).
The Pale Scot
If you can get liquid quickly, buy Swiss francs. Long term get into indexed funds like Vanguard.
NCSteve
I already checked. Turns out my 401(k) plan doesn’t offer anything but funds of credit instruments and/or securities. So I’m screwed.
Actually, no one’s 401(k) offers investments that won’t be trashed by a default, because there aren’t any. So we’re all screwed. But fortunately, once the Civic Minded Billionaire Society gets finished “fixing” Social Security, we’ll be entitled to claim half the benefits we’re scheduled for now once we reach the new minimum retirement age of 79.
John O
@cleek:
I think that’s insane advice considering the presence of an insane political party, but I am not a financial advisor. Some current events are relatively easy to correlate with market reaction, IMO.
MomSense
@sparrow:
My grandmother grew up on a farm in Ohio and ended up working as a domestic/nanny/cook for wealthy tire company owners. She had such a great sense of humor. She said they bought a cow for milk during the depression and named her “million dollars which was a lot of money in those days” and then she’d wink.
MomSense
@rikyrah:
This is a coup, plain and simple. We shouldn’t pretend otherwise.
John O
@MattF:
I checked it recently and it’s 85% AAA or AA bonds, with the bulk *gulp* being in mortgage backed securities.
I’m screwed, aren’t I? LOL.
Maybe after we default they’ll add a gold fund.
Cermet
Unless you know what you have, and what you will get if you change it you’d be a fool to make a rash move. That said, any fall caused by a debt ceil issue will quickly be recovered as people see bargains in the market later and most all stocks then rise.
By the way, where exactly will these US based capital “out flows’ go? Greece? or maybe Spain? China would love to pull out of the US economy and see it crash so its own exports crash as well taking their economy down with us – please people, get a grip and get real!!
A weaker dollar sounds nice. So, not all effects would be that terrible … .
Cermet
@MomSense: The inferior court already did that when it installed the cheney presidency back in 2000.
MattF
@John O: Well, I’m just surprised. The stable value fund that was available to me refused give out information about its holdings, so I took my money out and bade them adieu.
MomSense
@Cermet:
That’s why I used to joke that in 2008 the revolution was televised.
David Fud
@John O: That is not a good idea. Recent losses happened in that sector due to the hint that the Fed might not continue buying up Treasuries. A default will kill the capital you have in that market, especially long (i.e., 10 year) treasuries, to the order of at least 10% based on the previous market reaction I mentioned.
Zifnab25
Well, cash is king as they saying goes. I yanked out a few grand so I could be in a position to pick up any stocks that take a fat-finger style plunge. But I’m otherwise just going to camp out and wait for this mess to blow over.
There’s nothing you can do over the next two weeks that will improve your position if you’d planned to leave it unchanged for the next two years. :-p
Find some nice broad index funds and settle in for the long haul. Unless you’re looking to gamble, shit like this is going to be a non-event.
David Fud
@John O: If you are retired, you need to roll your 401k out of where it is into an IRA – something with more options, say Schwab. Doesn’t matter which, just something where you aren’t constrained by the crappy company choices.
John O
@David Fud:
Thanks. So back to the post’s original question, where should you put it? I can move it around easily and inexpensively. But the consensus here and in other threads seems to be that there is literally nowhere to put it, if you’re assuming default, unless you have a cash option, which I do not.
My loathing of the current version of the GOP is intense.
wvng
I moved everything we hold in equity funds into a money market fund on Sept 30. Don’t know if that was the right thing to do.
Zifnab25
@John O: In all seriousness, take a look at European telecomms. ORAN, VIP, DTEGY have all been doing well for me.
They’re stable, they pay a healthy dividend, and shy of a nuclear apocalypse, they aren’t going anywhere.
xenos
I am puttin 2/3 in cash, the rest is coming out of qualified status to be converted to Euros to buy real estate – a down payment for a house to live in that also has really good potential, someday, as a commercial property.
My plan is that when the dollar starts to crash I will pay off the tax liability by converting a year-end Euro-denominated bonus to dollars, and then use the spare cash in the IRA to buy back into the market in time for a rebound in stock values and USD values once Obama seizes dictatorial powers with the open support of the Chamber of Commerce.
It is a plan, at least. What could go wrong?
catclub
@HelloRochester: I would hope ( but have not checked) that the Vanguard target date funds are not so bad for fees.
In general, if your expected retirement is more than three years away, why do anything with that money to deal with the crisis of the moment? Does anyone think that this crisis will not be forgotten (in the markets, if not in our blessed memories) [or replaced in our worry box by a different crisis] in three years?
A second point is: if you take it all out now, what will
make you decide to re-invest? Nevermind the problem of what you will put it in in the meantime.
John O
@David Fud:
I’ve looked into that, and I’ll invariably pay more in fees and expenses in every option I’ve checked. And I’m not unsatisfied with my co. choices, either. It’s a good 401K by everyone’s analysis.
zmulls
I have both a 401(k) and an IRA. Both of them have a Money Market account that pays practically nothing and has almost zero fluctuation. I moved all my money out of stock and bond funds, and into the Money Market until the debt ceiling situation has passed.
I’m assuming someone far more knowledgeable will tell me that this was a useless or futile thing to do and I’m screwed anyway, but it was the only thing I could see to do.
The 401(k) had a one-month “freeze” — if you moved your assets into a new fund you had to wait a month before moving them out of that fund again (no excessive trading). The IRA had a two-month freeze before you could move back INTO a fund you had moved out of. I got out early so I can move the 401(k) money at any time, and will be able to trade back the IRA money at the end of October. If there’s still an economy.
IANAAoFE (I am not an accountant or Financial expert)
catclub
@David Fud: “If you are retired, you need to roll your 401k out of where it is into an IRA”
au contraire if one is a federal employee. TSP has the absolute lowest – by far- expense ratios.
AND you can roll your IRA investments INTO your TSP account!
John O
@Zifnab25:
Thanks for the tip, but not an option at this time. I’m assuming stocks will still take the deepest and fastest dive, so I want to stay away from them. I don’t think Europe or Asia will be immune if the nihilists have their way.
Oh, well. Looks like I’ll ride it out in the safest vehicle I have at my disposal. Hoping for stock market buy opportunity once things settle down. Maybe saner heads will prevail.
catclub
@zmulls: Look up Kasasa Banking accounts. At Credit Unions.
I get almost 3% interest on an account up to $25k balance. That is about 300 times better than
money market accounts are paying. ( 0.01% seems to be the Money market account yield)
David Fud
@John O: My loathing is the same. It is completely fcking up some business deals that are in the works right now due to attempting financing in this wild west atmosphere.
RE: where to put your money, when the Republicans threaten the things that are considered safe (i.e., the currency, the treasury bond market, and the economy), there isn’t anything to buy. Those things underpin all of the rest of the economy.
My recommendation, for what it is worth (not a lot since I know nothing of your situation): broad allocation to each sector, a moderate level of cash in order to buy things that inappropriately crash, some real estate if possible (not your house, something that produces income, like REITs or rentals), somewhat heavier on the allocation to stocks (blue chips) with a high level of yield (i.e., dividends), MLPs (oil pipeline stocks, generally speaking) that generate a lot of yield.
That’s all I got. If I could pull the plug on my portfolio and feel like it was smart, I probably would. Fear creeping up, but still holding in there so I don’t fck myself. Timing the market is for people who think they know what the future holds.
catclub
@John O: “I’m 54 and LIVING off my 401K”
Impressive. Doesn’t that mean also paying extra penalties for withdrawals before age 59?
David Fud
@catclub: That is a good point, and one I wasn’t aware of. I will stick to my guns based on what he described, but I certainly won’t die on that hill.
Phylllis
@catclub:
Not if you’re taking out substantially equal annual payments.
Patrick
Bingo! Your “feeling” to do something with your money is just the thing you were avoiding. There is no way of predicting which way any investment will move.
cvstoner
I would convert to cash, if possible. Bonds will still be a safe bet, because the interest you might lose will be incidental to the loss of equity you will incur if the stock market crashes.
John O
@catclub:
Yes.
I was prematurely retired. :-) Single, never married, no kids, straight (not that there’s anything wrong with that), and it’s just me a dog and cat, so I decided to try to stretch what little I have into my golden/silver/bronze years.
I’m one of those people who did everything “right” from a money perspective, besides the above I just never lived beyond my means and was a good little squirrel.
But it’s still going to be close, which is why I can’t stomach heavy losses anywhere, really.
You may have noticed I’m a bit risk averse. :-)
catclub
@John O: My view is that if you are 54, and expect to live beyond 80, then your investment horizon is over 25 years. Which is a pretty long time.
In that case, being exclusively in bonds rather than at least some stocks is actually the riskier investment. Do you read the Ritholtz Blog (The Big Picture)?
Sister Rail Gun of Warm Humanitarianism
@jibeaux:
I’ve also heard that Fox News is being decried as “liberal media” in some conservative circles, probably for the same reason.
John O
@catclub:
Not in a while, but it’s bookmarked.
I get what you’re saying, but until this clusterf**k is over I just see money going out the door in stocks. (So far I’ve been right.) I can jump back in to a more balanced portfolio at a moment’s notice, so I’ve been paying a LOT of attention to the news these days, more so than even usual.
An exercise in tea leaf reading, no question, and I may get burned, I understand that. It may not be much, but it’s a plan.
TAPX486
Really this isn’t rocket science. It isn’t even pre-school sand castle building. It may be true as the deniers claim that it won’t be that bad and the experts don’t know what they are talking about but why take the chance. If the experts are correct the risk is simply to great.
Unfortunately I think these people assume Tinker Bell will ride to the rescue on a pink Unicorn and make it all better with tons of pixy dust.
RosiesDad
@catclub: The Vanguard funds are all great with respect to low fees and low management costs. That’s the hallmark of the company.
That’s where my 401(k) is parked and its distributed between a few index funds (bond, total market), sector funds (health care, consumer staples, energy, REIT) and a Target fund.
I’m not planning on retiring for a decade so hopefully whatever blip occurs in the next couple of weeks will correct by the early to mid-2020’s.
Aaron Morrow
“However, I also know that those target funds are extremely passive in their management and are not optimized to deal with bizarre events like a political party willing to cause default just for the hell of it.”
Not moving your money all of the time is the benefit of index funds, or funds of index funds. Don’t move your money, unless you have a mortgage that you can pay down and you’re determined to move your money. (As Lex Luthor would say, land is always valuable.) Better yet, don’t move your money. If you’re not retiring for the next 5 to 7 years, not moving your money means that your portfolio should regress to the mean.
Don’t move your money before the crisis. (Post-Crisis, look into the expense of managing your own index funds vs. the fees of the target fund.)
P.S. Fix the Debt STILL wants to steal my Social Security and Medicare to pay for tax cuts for millionaires..
wvng
@WereBear: I called Shelley Moore Capito and asked her staff this question. Phrased something like: “so, where do you think we should put out lifetime investments if you crash the debt ceiling and destroy the world economy.” There may have been some emotion involved.
ryliex
I’m a fan of low-fee index funds who usually takes the ‘ignore the day to day’ approach. Every once in a while, a confluence of events will spook me enough to get out of the market (meaning pulling everything into what is basically a money market fund.) At the point where those are unsafe, then everything has probably gone to hell already.
I’ve done this twice: August 2008 and yesterday.
ryliex
I’m a fan of low-fee index funds who usually takes the ‘ignore the day to day’ approach. Every once in a while, a confluence of events will spook me enough to get out of the market (meaning pulling everything into what is basically a money market fund.) At the point where those are unsafe, then everything has probably gone to hell already.
I’ve done this twice: August 2008 and yesterday.
catclub
@TAPX486: “Unfortunately I think these people assume Tinker Bell will ride to the rescue on a pink Unicorn and make it all better with tons of pixy dust. ”
Well, I think there may or may not be a crash into the debt ceiling, but if so, it will get fixed: the debt ceiling WILL be extended, and two years from now, whatever gyrations it causes in the markets will be absorbed. People who sell when the market is dropping will end up less happy than those who did nothing. (See Sep 2008- Mar 2009)
pseudonymous in nc
@catclub:
The target one I’m using has a 0.17% expense ratio and no management fee. They’re basically funds of funds, with varying proportions of Vanguard’s other funds.
I have friends who are brokers and market analysts; in short, I know what I don’t know.
JPL
When did crashing the economy become a sport?
? Martin
S&P 500 is our fallback fund. Almost no fees because its an indexed fund, and if the S&P crashes, then we’re in a dystopian wasteland where the dollar has no value anyway.
I’ve seen no point in bond funds since the housing bubble started looking like a bubble. Most of my money is in stocks that have global reach and enough cash to survive any liquidity trap. Given that Apple has 3x as much cash and a greater ability to borrow as the US government, they’re especially attractive during periods like this – and their dividend is better than any domestic bonds you’ll find. There are plenty of other companies with similar profiles.
And a decent level of cash because you don’t want to get caught in a liquidity trap yourself.
@Zifnab25: I like european utilities as well for the same reasons. Good suggestion.
David Fud
This is probably the most even keel analysis I have seen, though it is somewhat negotiation centric, playing up a centrist negotiated outcome as likely. Not so sure about that myself…
Xenos
@? Martin: The Japanese institutional investors are starting to buy up European utilities and infrastructure funds at a premium. An expected 2 percent annual loss in Euros is a pretty good investment if you are looking at a long-term stagflationary scenario for your Japanese retirees and a long-term strong-Euro policy coming out of Frankfurt.
So for the next few years you could see a bit of a bubble in that area, too, but it would take strong guts for US institutional investors to be competing. Just go for the stocks, even at a high price, and you could have a pretty good hedge against a weakening dollar. This is not financial advice — in a true crisis any sound trend or prudent investment can go kablooey.
Xenos
@ryliex:
Me too, although it was more like June 2008 and two weeks ago. Last time I parked the funds in a money market mutual fund, because there would be no risk of a breaking of the buck. As Eddie Murphy once said, “Ha Ha Very Funny, Motherfucker!”
ryliex
@Xenos: Better timing on both calls, but at least I missed the Lehman crash.
What pushed me over the edge this time was watching the increasing sentiment in the batshit insane quarters that seem to be running this thing that hitting the debt ceiling would not only not be catastrophically awful, but actually a good thing. To which I say “nope,” I’m all out.
I’m with you on the whole by the time the dollar breaks we’re living in Mad Max reality thing. Money market fund it is.
Linnaeus
Retirement money? What’s that?
Anna in PDX
@David Fud: Thanks for that.
I am still in my 40s and not planning on retiring until after age 67, probably 68 1/2 or 69, because I want to get my full pension from the Oregon state public employees fund and didn’t get my government job until I was 38. I have a 457B or whatever the government verison of the 401K is, with ING, and am trying not to look at it during this debacle and will continue not to look at it. It is very meager because I started over at 38 after an awful marriage in which I lost everything I owned. But I am considering myself lucky in that I have a fund at all, I have a pension benefit which most people no longer have, and that so far I am in decent health so there is a lot to be grateful for and I will try to not pay attention to market fluctuations. Like John O I am risk averse and like to feel I have done all I can to maximize my security – unlike him I have two grown children, one’s in college and will have loan debt, I don’t own a house and really obsess about this stuff as a result. Don’t make a bad marriage and start over at 40, is the advice I’d give to young people. Ha ha.
raven
@Anna in PDX: Sheeeet, I got divorced at 40, lost everything. Got my doctorate at 50 and just keep on pushin. Shit happens, don’t let it bring you down.
Anna in PDX
@raven: Yes, you are 200% right on that one. I am very lucky, actually. My partner’s job is with an agency that helps homeless people over 55 and the stories he tells me every day make me that much more aware of just how lucky I am. It’s great you went back to school. I am so impressed with people that go back for higher degrees at my age or older. They have so much more energy than I do!
raven
@Anna in PDX: Hell, I got my GED when I was 17 in Korea! My grad work was in adult education, lifelong learning dawg!
ryliex
I have no retirement through employment (grad student then, postdoc now. We don’t get things like retirement funds.) Plus, thanks to being paid off of gov’t grants, I have paid nothing into SS/medicare. Plus I have this stupid fucking medical condition that tends to knock people into early retirement/disability. So I opened a Roth IRA and cram every bit of spare income I can into it and watch the general economic conditions with a paranoid and slightly twitching eye. Which I have lots of time to do currently since I am furloughed. Crazy people are driving me crazy.
ryliex
I have no retirement through employment (grad student then, postdoc now. We don’t get things like retirement funds.) Plus, thanks to being paid off of gov’t grants, I have paid nothing into SS/medicare. Plus I have this stupid fucking medical condition that tends to knock people into early retirement/disability. So I opened a Roth IRA and cram every bit of spare income I can into it and watch the general economic conditions with a paranoid and slightly twitching eye. Which I have lots of time to do currently since I am furloughed. Crazy people are driving me crazy.
catclub
@ryliex: “I’m with you on the whole by the time the dollar breaks we’re living in Mad Max reality thing.”
Didn’t a couple of money market funds actually break the buck in 2008?
xenos
@catclub: It is money you put in to a mutual fund so that money managers get a guaranteed percentage while you take all of the risk of losing money. See ‘Where are the Customers’ Yachts?
‘
ryliex
@catclub: They may have briefly. When they did or looked like they were about to, Fidelity (who I’m with) pretty much instantly shot out an email saying they were treating their money market funds as if they were FDIC insured (I think pegged to the dollar) to prevent a run.
There were some pretty shaky moments in those months. I seem to recall an actual bank run was a threat for a bit.
chopper
@John O:
even if treasuries are the ‘epicenter’ of a default, it’s not like anything else would do well either.
really there’s no magical ‘safe’ place to put a retirement fund if the country defaults. pretty much everything could take a huge runny shit. my stuff is currently in treasuries, but it’s a TSP where the treasuries are specific to the fund. whether that’s good or bad i have no idea, these are uncharted waters.
ryliex
@chopper: If the worst case scenario plays out, I think there might be a paradoxical seeming ‘flight to safety’ into treasuries. The logic would be, people see this as a temporary situation as opposed to collapse of gov’t, and guess that once the pain is actually felt in the markets, the situation will get resolved.
That, and there’s really no safe haven anywhere as an alternative.
ryliex
@chopper: If the worst case scenario plays out, I think there might be a paradoxical seeming ‘flight to safety’ into treasuries. The logic would be, people see this as a temporary situation as opposed to collapse of gov’t, and guess that once the pain is actually felt in the markets, the situation will get resolved.
That, and there’s really no safe haven anywhere as an alternative.
ryliex
*sighs* I fail at internetting today.
tybee
@catclub:
yup
chopper
@ryliex:
thing i figure is, regular treasuries may lose value if you can’t sell them on the secondary market anymore. in that case you’d have to hold onto them (just like with any other asset i guess) until the boat is righted and the gummint will cash em in. sucks for short-term bills, but it’s still not terrible.
as to non-public bonds like in the SS trust fund or the TSP, there is no secondary market. so i don’t see how those bonds lose any value by definition, unless the government comes out and says ‘we will not honor these bonds, ever’. which would mean the whole thing already went tits up and we’re probably cracking each other’s heads open to feast on the goo inside, and i don’t give a shit about my retirement portfolio.
Yatsuno
All my retirement stuff is parked in my TSP and not moving. Unless I’m forced to withdraw some early.
Jay S
I don’t understand using target date funds for retirement investment. You would have to ladder them like bonds or CD’s with different maturities to have income over time rather than a lump sum that you have to reinvest. They might be useful for a planed major purpose, but not for retirement income.
I don’t believe anyone can predict with any certainty what will end up with value after US default. There are too many political and emotional variables. It is particularly difficult to time any market in terms of asset value. I’m not sure money markets are going to be liquid or completely safe. The 2008 crises froze repos that many used for short term investments. I intend to let my diversified portfolio ride.
Barbara
@sparrow: This is more or less what I told my husband in 2008 when he begged me to liquidate investments and put them all in cash. Very few of us have enough to hold out for long, and that, among other reasons, is why most of us have to behave as if we are all in this together. It is still shocking to me that so many people truly don’t understand this, and unbelievable to me that so many of those people are in Congress. I remember how the 1995 shutdown ended: when Clinton basically told Congress that SS checks would not be able to go out after a certain date. If that happens, you will truly be able to identify the crazies by those who STILL insist on dying on that hill known as Obamacare.
David Fud
Here is another general article from 2 years ago that addresses this issue.
cat
If anyone is still reading.
Ditto on the fact management fees and ‘active trading strategy’ used by 401(k) managers strip you of your return from a 401(k). Get a low fee index fun, S&P500 or DJIA, for your long term investment and a money market for the part of your assets you want to keep ‘safe’.
Don’t try to time trades out of mutual funds as they have lock out periods, penalties, and other shenanigans to punish you. If you can’t afford to let your money sit in the stock market for the next 5-6 years to recover from loss it shouldn’t be in stocks, it should be in a short term reserves.
Either take it all out and buy drygoods, guns, ammo, medicine for the next few years or leave it in the stock market. Anything else is pure gambling.
Fred Fnord
What I find interesting is that nobody has mentioned foreign-denominated large-cap stocks. If my reading of the situation is right, one of the possible bits of fallout from a full-on smash into the debt ceiling is a very significant drop in the value of the dollar, to go with the drop in the value of T-bills. If that happens, than anything that’s denominated in a foreign currency that isn’t likewise fucked by the emergency is probably better. I wouldn’t go for Euros, because they’re busy trying their damndest to destroy their own currency, but I’m pretty interested in GBP, DKK (not sure how the ERM plays into this however), SEK, and Swiss Francs.
If the USD does take a substantial hit, even if other countries feel the pain too, by definition the USD will be going down compared to their currencies, and thus holding investments denominated in their currencies would be pretty useful. What I don’t understand is why there aren’t more people talking about this. Is my logic bad somewhere?
Bob's Had Enough
My thinking is that one should set themselves up to withstand a severe market downturn, but aside from that leave the rest of your money invested and don’t try to time the market. Market timing is a great way to lose money. You’re unlikely to get out at the top, you’re unlikely to get back in at the bottom, and you’re likely to loose money to taxes when you sell out.
Look back at how long significant market downturns last. Two years is about the limit.
If you live off your investments then have enough money in CDs or other non-volatile instruments to ride out a two year period during which you wouldn’t sell stocks. If the market goes south for a while you can carry on with life as usual and make that new car purchase/home improvement after stocks have recovered.
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Indexed funds. It is extremely unlikely that you or any fund manager can beat the market over time. Yes, some do for a short time, but there’s no way to identify who will prior to their good run.
Get your hands on “A Random Walk on Wall Street”. You’ll come away with a very solid understanding of why coming in second year after year after year beats coming in first once in a while. Think of it in terms of going to the track. If you could reliably pick the second place horse 100% of the time you would come away a winner.