Baumblog EST 1968 - A blog for the Baumbachs who originated in Syracuse, NY

So the stock market is falling apart, the country is in >$10 trillion worth of debt. How's your 401K doing? I've only just begun mine at IBM, but if I didn't know any better, it would look like I was throwing that money I planned on saving for retirement into a black hole. Yea, the matching is great, but not when you're losing money at an unbelievable rate. I imagine some of you guys out there with much bigger 401Ks have some worries.

I know like most anything else economy related, we'll eventually fix it...and that pulling money out of banks and 401Ks will likely only make the problem worse, but where do we draw the line? I'm losing money to help who out? People in debt? Executives who aren't getting quite as high a paycheck? I'm pretty new to all of this, and likely being too simplistic, but it's not looking like too bad of an idea to temporarily stop the 401K.

GJ said about 5 hours later

Leave your money in your 401(k) and keep pumping money into it. You're buying shares, and the shares will eventually recover. Right now, if you have a long term plan and patience, you'll make a killing in a few years since you're getting shares on the cheap now. I did this back during our last meltdown after 9/11, and made out very well indeed. My investment lost 25% in a short time, but I was able to purchase 25% more during the meltdown, and so when the stocks recovered, my total portfolio was up 45% over four years, including the loss years. That's not too shabby.

I won't lie--my assets, most of which are in a very aggressive mutual fund, have taken a huge hit--so far this year, I'm down 35%. So what am I thinking about doing? Yep, up my contribution percentage. Thar's gold in them there hills!
Steve said about 10 hours later

I'm with GJ, in that if the economy recovers, you'll do quite well buying stocks at the low prices they are now. The only hitch is if the economy never quite recovers, which there is a risk of. However, for you, with very little invested, there's not anything to worry about. For people of retirement age living off of 401Ks, I sure hope they moved all their money to bonds before the stock market started it's downward trend.
Geoff said about 11 hours later

I concur with Steve and GJ...if you have the money, buy buy buy! Just make sure you are making some wise investments, and a few crazy ones too! (hey, you never know)

Today I had my own money crash. Got my school taxes for this year and saw a 27% increase! This is mostly due to the fact that my house was assessed (by some whacky government hijacker) at $125,000. It was being billed at $107,500 as of last year. Somehow I don't think, even with my improvements, that in this market my house jumped up that much in value. I'd be lucky to sell it for what I paid for it 2 years ago...or sell it at all!
GJ said about 13 hours later

When you get taxed $7k on a house that isn't worth the $220k the government insists that it is worth, let me know.

To Steve's point--a total economic failure will wipe you out. However, if that happens, the world will be going to hell in an express train, so your 401(k) will probably not be your biggest concern. :) I'm an optimist, and I intend to make my $4M goal, dammit, crash or no crash.
GJ said 6 days later

Weeee! Another 800 points down today! Isn't this fun? They said that the Dow hasn't been this low since 2004...funny, my 401(k) is worth now about what it was worth in 2004. Go figure.
Geoff said 6 days later

well...they did manage to make up 430 points in the afternoon, so it wasn't a total blowout... I was really shooting for 1000 points, that would have been fun!
GJ said 6 days later

Cool, so maybe I'm back to 2005. Who needs a DeLorean?
Kristen said 9 days later

My 401k is down 35% as well since January 08--in fact, it is down much below where it was when I left Wegmans! I'm hoping the theory that buying up cheap stocks now works...although I have 35% less buying power as well.

I think that the media is playing a huge role in this crash. Whenever you see the news you are bombarded with pictures of Wall street suits with their hands over their mouths or eyes in utter disbelief and dismay. All you hear is "are we heading back to 1929 again?" Although I have to say, if I was nearing retirement, I would be absolutely freaking out right now. Good thing my children will live to be 200 and be able to support me for a long time.

Any bets on who might go under next? GM is not looking good, which is scary scary!
GJ said 9 days later

Ah, Kristen, you've touched on something I've been saying for a while. GM is on the very edge of bankruptcy, and their letter to suppliers yesterday announcing that they are pushing out their payment schedule from 30+1 to 60+2 net days means one simple thing--they can no longer pay their bills on time. Word is, Getrag has come calling on unpaid bills and they're scrambling to pay Peter and delay paying Paul. Funny to see a major business having the same problems a lot of us have these days.

Latest even scarier rumor--China, who the US has gladly sold all sorts of securities over the past decade, could come in and buy GM for next to nothing. How's that for scary?

I don't understand your comment about how you have 35% less buying power--that should only be the case if you're income is down as much as your 401(k). Mine hasn't changed--my contribution is the same, but since prices of the mutual funds that I purchase are lower, I get far more shares for the same price now.

The media isn't doing a very good job of explaining the problem--but then again, our government obviously doesn't understand it either, as this silly bailout plan isn't going to fix the problem.
Kristen said 9 days later

Well, since I stopped working at wegmans I don't contribute anymore to that 401k, I now have a retirement account that the school contributes to for me...although I need to set up a roth ira once I get settled in a house. That's why it feels like I have 35% less buying power. I would love to be wrong!
GJ said 9 days later

Don't go the Roth route until you max out your 401(k) contribution, unless your 401(k) investment choices suck. You can contribute up to something like 15% of your income to the 401(k), and the tax breaks are better than in a Roth (roths are post-tax dollars, 401k are pre-tax).

Geoff said 10 days later

Yes but with Roths you don't have to pay tax on your earnings, unlike regular 401K/IRA's.

It all depends on your current tax bracket and what you expect to be at when you retire. Right now I am in a low tax bracket, so I'd rather pay tax on what I contribute now, and assuming the market goes up, I won't pay tax on my earnings. Thus I am going with Roth for the moment. Of course, I won't realize any benefit until I am 59 1/2.

A traditional IRA or 401K will give you an immediate tax-free benefit. So if you are considering a Roth IRA, make sure you live long enough to enjoy the money, make sure you are in a low tax bracket, and pray the laws don't change too much :)

Also, if the market goes boom boom when you are about to retire...you aren't forced to take cash out of the ROTH IRA...too bad for those folks today who don't have a Roth.
GJ said 10 days later

ok, let's clear up some misconceptions just introduced by Geoff.

401(k) are pretax...you pay no tax going in, and you pay income tax on what you take out and it is based on your tax bracket at the time of withdrawal.

Roth are after-tax--you are using income that Uncle Sam is taxing, so that means when you take it out in the future, you don't pay tax on it again.

If you are in a low tax bracket today, it may make sense to have a Roth. I can't speak for Geoff, but I'm definitely not in the bottom tax bracket today, so I used the 401(k) to help lower my current tax bracket (remember, it takes away from your taxable income). Yes, I'll have to pay income tax on it when it comes out, but I expect to be in a lower tax bracket than I am now--that's called smart living. :)

Now, let's say you were close to retirement before this whole fiasco started. If you had a portfolio like mine (high risk) at age 60, you are an idiot. Rather, you'd have a portfolio with next to no stock, few mutual funds, and lots of bonds and cash equities. Want to know why? Right now my stocks and mutuals are down anywhere from 25-50%. My bonds? Up 1%. That's right--they're unaffected...unless inflation goes bonkers, and then everyone gets screwed. :) So as you get close to retirement, you move stuff from high risk, high return to low risk, low return...because your goal at that point is cash preservation, not gains.

Now, I'm 38. I have lots of time for the market to rebound, and it ALWAYS rebounds. At least, so far it has. If it doesn't, we'll all have far worse problems to worry about, so I won't give a crap about my investments and worry more about feeding my family. Even if the recovery takes 20 years, I'll still come out ahead, and my investments will still be measured in the millions of dollars.

So...word to the wise. Don't pull out of the market. For sure, dump stocks of dead fish, like domestic auto companies and mortgage firms, and instead stick to mutuals and "newer" blue chips stocks. In ten years, you'll be thanking me. :)
Kristen said 11 days later

This decision might be easy for me because I don't think my "company" (the county school system) offers a 401K. I don't think you can just create one, can you? I've heard that my choice is basically between a 403b and a Roth Ira. I am also at the bottom of the tax bracket now, and will stay (firmly) there if I stay single, but will rocket to the other side (of the moon) if I end up with Drew--so I'm thinking that I better pay tax now and hope that the laws don't change.

Good news though--gas is down below $3 a gallon here. Anyone else?
GJ said 11 days later

Gas is hovering about $3.20 at the moment out here.

Kristen, if your employer offers any retirement program by where they contribute *anything*, that's your best deal. We folks in the non-education business have 401(k) plans (they replaced pension plans, like what Dad had back in the day), and most companies match you to some degree on the first few percentage points of your salary that you contribute to the plan. My company matches dollar for dollar (100%) of the first 4% that I contribute, so I'd be an idiot to contribute any less than 4% to ensure I got my free 4%.
Geoff said 11 days later

I paid $3.82 the other day...premium of course. :)

Rochester sucks when it comes to gas. We're about 20 cents more than Syracuse, and I think Albany is 10-15 cents cheaper than SU!