Tag Archives: 401k

Markets go Up and Markets go Down

Although this may seem incredibly obvious, many people say that markets always go up. I remember during the real estate bubble that popped in 2008, agents were saying,

Real estate always goes up.

It’s pretty obvious now that is a lie. But it works for them. The clueless would-be investors that believed them bought up properties like there is no tomorrow. And for them, there wasn’t much of a tomorrow. Most of the properties went into foreclosure and were repurchased by more savvy investors.

Shanghai Composite Index

Shanghai Composite Index 2011 – 2016

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Are you Ready for the Financial Crisis?

A wise man once wrote:

Markets top slowly and bottom quickly.

When I read this and anlyzed some of the major market tops over the last 100 years, I was surprised by the accuracy of this statement. (One major exception was the 2000 Tech Bubble, which was quite different from other market dynamics.)

S&P 500 Jan 2011 - 2016

S&P 500 Jan 2011 – 2016

The theory behind this is that the “smart money” figures out that a market is topping long before the average Joe. I’m not sure if I agree with the theory, but it does seem to me that the “stupid money” gets out way too late, after the market has dropped significantly.

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Reading List: Some Investing and Finance Reading Highlights

Image courtesy of Creative Commons

Bad news on the economic front. The American economy is stalled. Job growth is non-existent.

But thanks to some recent reading on Trend Following, I now realize there’s no such thing as a bad economy. You can make money in any economy. You can save money in any economy. You can also waste money in any economy.

It’s just a matter of keeping connected and continually educating yourself.

So, here’s what I’ve been reading…

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Two Do’s and Two Dont’s of Personal Finance

This guest contribution was submitted by Pamelia Brown, who specializes in writing about associates degree. Questions and comments can be sent to: pamelia.brown@gmail.com.

Personal finance has been a hot topic of discussion as of late and with good reason. With money on the forefront of everyone’s mind, there are plenty of articles out there offering tidbits about how to save more money and how to make more money. While these can be extremely helpful for some, often this advice is only applicable in specific situations. What some fail to realize is that personal finance is just that; it’s personal and, therefore, must be personalized. There is seldom a list of tips and tricks in personal finance that are appropriate to every individual’s situation. A financial plan must make sense for that person and that person’s lifestyle. However, while one thing that works well for one person may not yield the same results for the next person, there are some general do’s and dont’s every person should pay attention to regarding their finances.

Image courtesy of Yomanimus

Do’s

1. Create a Budget: This is the very first thing that you want to do regarding your personal finances. A budget provides a clear view of how much money you are earning, how much money you are spending, and where you are spending it. When creating a budget, you are forced to evaluate your spending habits and your actual financial standings. A budget allows you to see which items you spend money on are actually unnecessary and can be eliminated. For example, while developing a budget you may run across a membership you pay for to a place that you never visit. It is after evaluating your entire budget that you are able to decide whether you want to cancel that membership and save the extra money or not. Obviously each individual is going to have a budget that is unique to their situation. But as a general rule, learning about your spending habits and carefully mapping them out is a great way to better grasp a successful financial plan.

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The Ivy Portfolio Review: Part 1

Last week I read The Ivy Portfolio by Faber and Richardson. Before I tell you about it, let me share with you one incredible resource.

I found out about the book from an awesome site that you really need to check out: dshort.com. I was so impressed that I immediately added it to the blogroll. What’s so great about it? It is easy to understand, offers outstanding content, and has great charts and graphs. I’ll be writing about it extensively in a future post.

Back to The Ivy Portfolio. It explains how Yale and Harvard endowment funds have outperformed the market and had consistent returns for 23 years (ending in 2008). I think that is pretty useful information. And, thanks to the great writing, you don’t need a Ph.D. in mathematics to understand it. It is actually very easy to understand and replicate the strategies.

How good is outperform? Yale returned an average of 16.6% per year. Harvard did 15.2%. Not bad for such a long period and two major market crashes. What is their secret? Did they have 100 Ph.D.’s working for them?

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BrightScope: Technology for Your 401k

Technology will touch everything. And it will change everything. Personal finance is no exception.

Your 401(k) plan isn’t immune from the reach of technology, either. Companies probably thought they could offer their plans and it would be a secret between the company and the employee.

Most 401k plan participants can easily find out what kind of fees that plan charges, or even what types of investments their plan holds.

But a new technology is changing that.

BrightScope quantitatively ranks 401(k) plans–and participants, advisors, and companies all could be better for it.

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Secret #7: The Government will not be able to take Care of you

In the olden days (circa 1970), people expected the government and other institutions to take care of them. They depended on the government to educate them through the school system. The depended on Social Security and their company’s pension plan for retirement income. And they depended on Medicare and Medicaid to handle their medical expenses.

How times have changed. Since those good old days, the dollar was taken off the gold standard. That means that the government could print as much money as it wanted. It could pay its own deficit with the money that it printed. This means that there is no limit to the amount of money that the government can spend. And that’s why it is spending money faster and faster. It is spending money that it doesn’t even have.

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Why Most Financial Advice Is Useless

It’s no secret that we are in a serious financial crisis. Some of the largest companies in the country are facing bankruptcy. Foreclosures are at an all-time high. Layoffs are creating hardship for millions. Many people’s retirement accounts are down 50%. People are wondering how they’re going to survive.

Part of the reason that this financial crisis has been so damaging to millions of people is that they took bad financial advice. Most people who have a 401(k) or IRA account had no idea how to invest their life savings. So, they met with a financial advisor. This advisor may have been provided to them by their 401(k) company, or perhaps they found the advisor on their own.

Most financial advisors recommend putting your money in a combination of stock funds and bonds funds. The traditional idea is to put more money into stock funds when the client is younger. Unfortunately for the client, stock and bond mutual funds are the worst possible investment they can make. There are a few good reasons that these mutual funds are widely recommended and are the de facto investment vehicle for most Americans: Continue reading

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Myth: Retirement Accounts Are Designed To Help You Retire Early

There’s a factory near where I once lived that was built about 40 years ago and no one has ever retired from it.

Is it because the job is so great no one ever wants to quit? Hardly.

It’s because workers use their 401K plans exclusively to fund their retirement. Unfortunately, the money contributed to these plans must stay there until they reach 59.5 years old and the back-breaking work and ruthless company policies claim these workers long before they can use this money penalty-free.

They either die, or get fired before they reach retirement age.

Retirement accounts that allow you to compound money tax-free are designed to keep you in the work force until you’re too old to use the money. It’s actually a boon for organizations and corporations to maintain a hungry, available pool of labor. The system also benefits the financial industry, which can maintain trillion-dollar accounts (filled with your money) over long time periods.

If the government and your company really wanted you to retire, they would allow you to maintain any investment account tax-free. They could let you compound the money, increasing the balance exponentially, and then tax it when you withdraw it as income. If that was the case, more and more people would leave their jobs once their accounts were large enough to spin off an acceptable level of income.

And then what would your boss do?

This is not meant as advice to abandon your retirement plans. In fact, you should keep contributing and even maxing them out. You should never deny yourself free money, even when the terms are not exactly satisfactory.

But, if you want to retire early, you need to add tools that lie outside of the typical retirement plans. You need to create a trading or investment account that you control now and one that can produce consistent and exponentially-increasing returns. It may sound like an impossible order, but as technology becomes more advanced, investors and traders will have more opportunities to create just such an account.

This is the first post in a series about financial myths that make you poor. For more information, you might want to read the previous article in this series. It’s called Financial Myths That Make You Poor.

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