Another bubble melt-down in your future?
Follow this link to a great article about the possibility of more economic bubbles to come. http://www.comcast.net/articles/finance/20091008/US.Meltdown.The.Next.Bubble/
I know it is a little long and somewhat technical but it is really worth a read. I hope you get the point that to days economic environment has created the possibility that bubbles will come more quickly and from many sources. This isn't like 1929 (Depression Era) that was followed by a long period of growth. We are in a whole new situation and need to think about how we react.
One term mentioned several times in this article is "herd" mentality. We saw that with the "tech" bubble and the "housing" bubble. What we are also seeing every day is the wild swings in the markets based on a tid-bit of news. It seems that every day it is get into this, or out of it.
I'm not going to even pretend that I know what is going to happen with the market. What I do know is that we need to take control of our investment decisions using thing we can understand, not some derivative.
If we want to plan for retirement then we need to be able to say that if I put this much into this investment it will earn this much money over a period of time, and I will have this much more at the end. Not, if I invest this much I might have that much. We are not playing the lottery folks. This is your retirement we are talking about.
If you don't understand the markets then find a secure way to invest. This site talks about CD's at financial institutions. They are insured by the federal government and earn interest every day. You won't loose what you put in, and you will know what you will have at the end of the CD term. I know it is not glamours and won't get you a high return on your investment like Bernie Maddof promised. Howerver, if you take the long view, you will know where you are going and what you will have when you get there.
Let me know what you think. Thanks.
Obama encourages savings
Within the last several days the President has encouraged Americans to save more by getting their tax refunds in savings bonds and making "opt-out" the norm for 401(k) plans. Is this a good idea for you?
Series EE Bonds earn .7% interest. You can probably do better with a bank CD or Money Market account. Maybe even a savings account.
By establishing an "opt-out" approach to participation in company sponsored 401(k) plans, the President is forcing you to take action to not have money from your pay check contributed to a company sponsored retirement plan. There are lots of advantages to participating in a 401(k) plan. You are saving pre-tax dollars (you don't pay taxes on the money you save when you save it).
However, you are usually offered a limited set of investment choices as selected by your plan (employer). These usually include a variety of mutual funds and a money marketmutual fund. Seldom does it include investments in bank CD's.
Why is that important? With mutual funds you are investing in the stock market. Thus you are subject to the whims of the market and the expertise of the portfolio manager.
You won't have the security of a government insured CD that can be obtained from a bank. As far a I know, only one 401(k) plan administrator offers CD's as an option in a 401(k) portfolio. That is Pentegra. Funny thing is they were originally set up to handle the 401(k) accounts of the Federal Home Loan Banks in 1943. Maybe they knew that CD's were a more secure investment than anything else.
The point of this commentary is that if you are encouraged to join a 401(k) plan then press your employer to provide one that offers a safe and secure investment alternative, such as CD's.
If your over 59 1/2 years old you can also ask if your 401(k) plan allows withdrawals over this age. These can be taken without penalty as long as the funds are then moved into a traditional IRA. The IRA will now allow you to invest in federally insured CD's and remove the risk of principle loss to a volatile market.