some financial advice
I'm just typing this post because I think there are a lot of people out there that don't know what their options are during this financial crisis that we are currently going through and so I hope that some of my words will be useful to some of you out there. DISCLAIMER: While I am advising certain routes of action, please do take my advice with a grain of salt and also please consult a financial advisor if you have one prior to implementing any changes to ones retirement account. There are various tax consequences that one must be aware of prior to making changes that I do not have the time to get into nor the intimate knowledge that financial advisors have.
Q: I am losing a large percentage of my savings in my IRA. What should I do?
A: The answer depends on how you are invested in your IRA, your age bracket, and the amount of risk you can afford to take. If you are currently vested in stocks and bonds and are close to retirement, you may want to close your positions in stocks and bonds and keep your money in the cash account of your brokerage. Usually this is a money market account (MMA) that pays interest and is for the most part safe. There is some risk even in this case of losing money in a MMA if the brokerage's MMA is backed by risky high yield bonds, etc. Check with your brokerage to see what their MMA accounts have as their underlying investments and also see if your brokerage participates in the Treasury Money Market Fund Guarantee Program (TMMFGP). I know for a fact that Fidelity is one such brokerage that participates in the TMMFGP. You may also want to look into Fixed Income securities such as CDs.
If you are currently vested in stocks and bonds, and are not risk-averse, you may consider staying in your positions and maybe even buying more stocks and bonds of companies that have sound financials but whose stock has been pummeled by the latest panic selling on Wall St. If you are risk-averse, I would suggest liquidating some of your stock and bond holdings and moving to cash positions and Fixed Income securities as mentioned above. This way you can stay vested in the market to some extent so that in the eventual upswing, you will not miss the advances. Staying liquid in cash positions is also desirable in this scenario if stocks start to rise and you decide to buy back into securities.
Q: What if I have a 401k?
A: If you are working and contributing to your 401k, unfortunately, to the best of my knowledge you are stuck with the funds that your company has chosen for you. If you have retired, you should consider rolling your 401k into a Rollover IRA. This can be done at any brokerage and requires you to fill out paperwork.
Q: What if I want to just cash out of the stock market? I seem to be losing money left and right and I don't have faith in the market.
A: Ultimately, what you decide to do is up to you. However, I would caution that removing money from a 401k or an IRA prior to retirement or whatever qualifying events occur may subject you to additional taxation or penalties which could end up being costly to you by reducing your total take from liquidating your accounts. Furthermore, if history is to be any indicator of future trends, you will notice that the stock market operates in a cyclical fashion. Recessions are followed by booms, and the cycle repeats itself over the decades that the stock market has been operationg since its inception.
Understandably, these are crazy times and one would like to know if there is an end in sight to the precipitous drop in market value. To that, I have no answer as to what sort of timeframe we are looking at. However, I would urge people to stay optimistic and just continue their day to day jobs, etc. Panic is what is gripping the world financial markets and banks are hoarding cash, refusing to lend to one another at reasonable rates. This in turn causes liquidity issues that trickle down to affect payroll, etc. I am disgusted at the greed that had fueled this crisis to begin with, but I acknowledge that what has been done is done. And so, we must face ahead and keep hoping for a brighter future. I would say that we are in the midst of a recession, but I hope that the financial whizzes have figured out a way to avoid a depression. There are still many tools available to the governments of developed nations that can and possibly will avert a depression.
Q: Are you qualified to offer financial advice?
A: I am not licensed nor am I a financial analyst by training, hence the disclaimer at the beginning. However, I am simply trying to disseminate crucial information to people via the Internet in case they are not aware of the options available to them in this time of financial turmoil. I have no vested interest in whether or not people lose money, but hope that people would take a closer look at their financial situation to better adjust for the current times. If you are unsure of what to do about your retirement accounts, I would urge you to go see a financial advisor immediately to see what steps can be taken to safeguard your retirement funds.
Q: I am losing a large percentage of my savings in my IRA. What should I do?
A: The answer depends on how you are invested in your IRA, your age bracket, and the amount of risk you can afford to take. If you are currently vested in stocks and bonds and are close to retirement, you may want to close your positions in stocks and bonds and keep your money in the cash account of your brokerage. Usually this is a money market account (MMA) that pays interest and is for the most part safe. There is some risk even in this case of losing money in a MMA if the brokerage's MMA is backed by risky high yield bonds, etc. Check with your brokerage to see what their MMA accounts have as their underlying investments and also see if your brokerage participates in the Treasury Money Market Fund Guarantee Program (TMMFGP). I know for a fact that Fidelity is one such brokerage that participates in the TMMFGP. You may also want to look into Fixed Income securities such as CDs.
If you are currently vested in stocks and bonds, and are not risk-averse, you may consider staying in your positions and maybe even buying more stocks and bonds of companies that have sound financials but whose stock has been pummeled by the latest panic selling on Wall St. If you are risk-averse, I would suggest liquidating some of your stock and bond holdings and moving to cash positions and Fixed Income securities as mentioned above. This way you can stay vested in the market to some extent so that in the eventual upswing, you will not miss the advances. Staying liquid in cash positions is also desirable in this scenario if stocks start to rise and you decide to buy back into securities.
Q: What if I have a 401k?
A: If you are working and contributing to your 401k, unfortunately, to the best of my knowledge you are stuck with the funds that your company has chosen for you. If you have retired, you should consider rolling your 401k into a Rollover IRA. This can be done at any brokerage and requires you to fill out paperwork.
Q: What if I want to just cash out of the stock market? I seem to be losing money left and right and I don't have faith in the market.
A: Ultimately, what you decide to do is up to you. However, I would caution that removing money from a 401k or an IRA prior to retirement or whatever qualifying events occur may subject you to additional taxation or penalties which could end up being costly to you by reducing your total take from liquidating your accounts. Furthermore, if history is to be any indicator of future trends, you will notice that the stock market operates in a cyclical fashion. Recessions are followed by booms, and the cycle repeats itself over the decades that the stock market has been operationg since its inception.
Understandably, these are crazy times and one would like to know if there is an end in sight to the precipitous drop in market value. To that, I have no answer as to what sort of timeframe we are looking at. However, I would urge people to stay optimistic and just continue their day to day jobs, etc. Panic is what is gripping the world financial markets and banks are hoarding cash, refusing to lend to one another at reasonable rates. This in turn causes liquidity issues that trickle down to affect payroll, etc. I am disgusted at the greed that had fueled this crisis to begin with, but I acknowledge that what has been done is done. And so, we must face ahead and keep hoping for a brighter future. I would say that we are in the midst of a recession, but I hope that the financial whizzes have figured out a way to avoid a depression. There are still many tools available to the governments of developed nations that can and possibly will avert a depression.
Q: Are you qualified to offer financial advice?
A: I am not licensed nor am I a financial analyst by training, hence the disclaimer at the beginning. However, I am simply trying to disseminate crucial information to people via the Internet in case they are not aware of the options available to them in this time of financial turmoil. I have no vested interest in whether or not people lose money, but hope that people would take a closer look at their financial situation to better adjust for the current times. If you are unsure of what to do about your retirement accounts, I would urge you to go see a financial advisor immediately to see what steps can be taken to safeguard your retirement funds.