Watching your new worth decline isn’t fun. But when investing over the long term you will have some good periods and some bad periods. Diversification can help smooth out the extremes but the markets are often driven by emotion. And those emotions (greed, fear…) cause extreme price swings. I am getting ready to invest more in the market. I don’t know how much further we will go down, or if we are at the bottom now (unlikely). But there are investments I am happy to own at these prices. The main reason I don’t buy more is the limitation of my capital. And I would rather buy in slowly so if prices decline I can get more for my money.
Not surprisingly the stocks I am looking at are those in the 12 stocks for 10 years portfolio. I am looking at buying more Templeton Dragon Fund, Toyota and Google for myself now. I am happy to be able to buy more of these stocks for the long term. It is not fun to see my net asset value decrease but that does provide some opportunities for buying stocks at lower prices. They may turn out to be bargains, or maybe they will drop much further. That only time will tell, but I am happy to add to those positions at these prices.
On the overall market I am waiting and watching. But I am leaning now toward moving more of my long term investing into stocks – I am already over-weighted there compared to the conventional wisdom but that is my style. I am willing to take more risk with a long long term investment portfolio. As the time frame shrinks (and the assets grow) I believe in reducing the risk profile for the overall portfolio (though I still believe conventional wisdom over-emphasizes price volatility risk (compared to inflation risk, for example). This market does have real potential for creating serious long term problems, which is why I need to think more (and get more information) about the long term implications.
Related: Investment Risks – books on investing – Does a Declining Stock Market Worry You? – Uncertain Economic Times
Why Allocations Make A Big Difference
Good advice, but I believe people need to be much more careful with bonds than many people believe. Long term bonds can be volatile (both due to interest rate and other risks). And with interest rates low this risk is higher. The duration of your bonds (as well as credit/business risk) is a very important factor (the longer the duration the higher the interest rate risk).
I also think the importance of asset allocation increases as your assets increase and the goal gets closer (normally retirement but also could be a child’s education fund…). And I think you need to look at more than just stocks versus bonds (different types of stocks, real estate… are important considerations). I discussed some possible retirement account allocations possibilities for early in life in a previous post.
Related: Lazy Portfolio Results – Investing books – Roth IRA – Dollar Cost Averaging
What Is Frugality? What Are The Best Examples?
* Money – less money on replacements and monthly utilities.
* Time – less time at hardware stores and climbing ladders.
* Earth – less burning of fossil fuels to generate electricity.
Very nice example. I do think including time in personal finance discussions makes sense. At times people seem to spend far too long on minimal savings (and/or buy things that break, don’t work well, require extra time to use…), in my opinion.
Related: New Graduates Should Live Frugally – Frugality Versus Better Returns – Too Much Stuff
Americans working past retirement
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Twenty-nine percent of people in their late 60s were working in 2006, up from 18 percent in 1985, according to the Bureau of Labor Statistics. Nearly 6 million workers last year were 65 or over. Over the next decade, the number of 55-and-up workers is expected to rise at more than five times the rate of the overall work force, the BLS reported.
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Working another three years — from 62 to 65, for example — and continuing to save 15 percent of salary could raise annual income from investments by 22 percent. Make it five years and boost savings contributions still higher — even better.
Putting off retirement also may enable people to delay when they start taking Social Security benefits, which can significantly increase payments.
“The longer the delay, the better” financially, said Fahlund. “To me the ideal would be 70, because you get the biggest Social Security benefit possible and all those additional years of employment. And it keeps you going mentally and physically too.”
The economic reality is retiring at 62 is not realistic for most people today. Retirement age has barely budged at life expectancy has increased by 20 years. I have long felt the best practice for the economy is to provide part time work to transition into retirement. This allows people to slow down their work lives, but not completely leave it behind. And the financial benefits are very helpful to all those that did not save enough early in their lives.
Related: Retirement Delayed, Working Longer – Our Only Hope: Retiring Later – Many Retirees Face Prospect of Outliving Savings – Retirement Savings Survey Results – Saving for Retirement – Spending Guidelines in Retirement – Tips To Allow Retiring Sooner
10 things your bank won’t tell you
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For people who travel a lot, Arnold recommends a Capital One credit card, which charges no overseas-transaction fees (and even declines to pass on Visa and MasterCard’s 1% fee to customers).
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Last year, the Government Accountability Office sent investigators to see how well banks explained their fees and other conditions to potential customers. Though banks are required by law to make this information available, the GAO said one-third of the branches it surveyed didn’t provide the required information. Worse, more than half didn’t have any fee information on their Web sites.
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Though big banks offer many conveniences, they can come at a price: high fees. In 2006, the 10 largest banks generated 54% of revenue from fees and service charges. By contrast, the 10 smallest banks generated just 28% from those sources.
Related: Sneaky Fees – Don’t Let the Credit Card Companies Play You for a Fool – Majoring in Credit Card Debt – Avoid Getting Squeezed by Credit Card Companies – Legislation to Address the Worst Credit Card Fee Abuse, Maybe -Bad Practice: .05% Interest From a Stock Broker – Hidden Credit Card Fees
Unfortunately some companies think the way to make money is to try and con their customers out of cash. Certain industries seem to prefer this tactic: credit cards, banks, printer companies… To avoid rewarding them for behaving badly read: Take That, Stupid Printer!
But my printer’s pages hadn’t been fading at all. Did it really need new toner – or was my printer lying to me?
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To find out, I did what I normally do when I’m trying to save $60: I Googled. Eventually I came upon a note on FixYourOwnPrinter.com
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covering the sensor with a small piece of dark electrical tape tricked the printer into thinking he’d installed a new cartridge. I followed his instructions, and my printer began to work. At least eight months have passed. I’ve printed hundreds of pages since, and the text still hasn’t begun to fade.
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many Hewlett-Packard printers can be brought back to life by digging deep into their onboard menus and pressing certain combinations of buttons. (HP buries these commands in the darkest recesses of its instruction manuals
You can believe what I am sure would be arguments by the companies for why breaking customers printers is helpful or you can save money and the environment by realizing that printer companies are notorious for trying to manipulate customers and use the internet to find ways to protect yourself and the earth from such abuse.
Related: Price Discrimination in the Internet Age – $8,000 Per Gallon Ink – Kodak Debuts Printers With Inexpensive Cartridges – Zero Ink Printing – HP Poor Service – Industry Standard?
There are ways to get more vacation time
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According to Robinson, mentioning to your boss that you are willing to go on vacation without any pay can often be a very effective way to get some time off.
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Take what you get: It may seem obvious, but many people don’t check how much time they are entitled to take off. Many others are reluctant to take the average nine days of paid vacation to which they are entitled, often because they are afraid it will show weakness or lack of loyalty.
Joe Robinson said there may be “ongoing subtle discouragement” in the work force, but employees should remember that they are entitled to their vacation and should not be afraid to take it. In 2005, U.S. workers collectively turned down a staggering 1.6 million years of vacation time that was offered to them.
I find these discussions of how little time off we have interesting. Similar studies look further back, at hunter gathers and find similar patterns. Still they are a bit misleading. What about total hours worked during the year (for peasants). What about the conditions of work and life. What about life expectancy… Still I agree with the thought that more vacation is more important than more work to fund more spending. I would rather reduce my spending and have more free time. I have taken unpaid vacation myself, and have worked part time, at times, to buy myself more freedom to spend my time as I wished.
Related: Vacation: Systems Thinking – Workplace Experiments
I figure it is pretty easy to figure out if I can afford something. Do I have cash available (my paycheck already has retirement funds etc. deducted before it shows up in my checking account)? I also have a separate saving account for medium term savings and a separate brokerage account for long term investing (and a Roth IRA). So the money in my checking account basically is how much I have to spend. If I have the money and want to spend it, I can afford it. If I don’t have the money, I can’t afford it. I can just save until I can.
There is a nice post, How to find out if you can afford something, that explores when that simple concept isn’t quite enough.
I made this mistake when I decided to start a saltwater aquarium. I found a great deal on the tank and some supplies on Craigslist, and went ahead and bought it. What I didn’t factor in was the costs of additional supplies, fish and ongoing maintenance. Turns out, saltwater aquariums are an expensive hobby. In hindsight, I wish I had done my homework a little more.
Good Advice. Related: Americans are Drowning in Debt – Too Much Stuff – Add to Your Roth IRA – Teaching Children About Money Matters
Bankruptcies among seniors soaring
The average age for filing bankruptcy has increased and the rate of bankruptcy among those ages 65 and older has more than doubled since 1991, say researchers Teresa Sullivan of the University of Michigan, Deborah Thorne of Ohio University and Elizabeth Warren of Harvard Law School.
Expensive health care costs from a serious illness before a patient received Medicare and the inability to work during and after a serious illness are the prime contributors to financial crises among those 55 and older. But even among those 75 to 84 and receiving retirement, Social Security and Medicare benefits, the rates soared—from just 1.8 percent of all filers in 1991 to 5 percent in 2007.
Most Americans have two major assets: their homes and their retirement plans. And borrowing against those assets can present new risks when home values and stock markets decline, Sullivan and colleagues say. In some cases, older Americans trying to help children and grandchildren, borrow too much, putting themselves at risk.
Related: Boomers Face Retirement – Retirement Tips from TIAA CREF – Saving for Retirement
Retirement planning is a huge financial need and one of the areas where financial literacy can pay off very well. Understanding the incredible power of compound interest can be used to start your retirement savings early and provide you with a huge benefit. Understanding the risks of inflation can guide your investment decisions. The recent Business Week Retirement Guide is very good. In Spending Safely, they explore how to spend while preserving your capital in retirement.
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Bengen now suggests that the 4% figure – actually 4.1% for a 60/40 portfolio of large caps and bonds and 4.5% if you toss in small caps – merely seems impressive when plugged into Excel (MSFT) spreadsheets. In practice, the strategy, which Bengen stopped using with his own clients about three years ago, is inflexible and unrealistic he says – and the formula is too stingy.
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Flexibility is factored into Bengen’s revised approach, which permits withdrawals to fluctuate within guidelines. His “floor-and-ceiling strategy” suggests that an initial withdrawal rate of 5.16% would be appropriate if a retiree pares back subsequent withdrawals by as much as 10% of the initial withdrawal during hard times (the floor). On the other hand, a retiree could withdraw extra cash equaling up to 25% of the first-year withdrawal (the ceiling) when the market is strong.
This adjusted thinking is correct I believe. People want simpler answers but some things just require a more complex understanding.
Related: How Much Retirement Income? – Add to Your Roth IRA – Retirement Tips from TIAA CREF – Our Only Hope: Retiring Later