Posted on 09/25/2008 6:47:47 AM PDT by reaganaut1
As background, my wife and I are in our 30s and have savings in the six figures.
I am not selling our stock mutual funds, because the 20% fall in the stock market YTD has already reduced our exposure. I will not buy individual stocks, because recent history shows how big companies can go to zero in a flash.
Municipal bonds have higher yields that Treasury bonds of comparable maturity, so I bought a long-term muni bond fund. I don't think Bush's tax cuts for the higher brackets will be renewed.
The yield spread of corporate bonds over Treasuries is much higher than 2 years ago, so I am thinking of buying some corporate bond funds, both investment grade and high yield, in our retirement accounts.
The Federal reserve is wearing many hats, trying to avoid a financial crisis, stave off a recession, and keep inflation low. That's a tough balancing act, and I think the inflation target is often the one that is not met. It's probably worth having some money in foreign bonds, gold, or a mutual fund that tracks a commodity index.
I think a recession is likely. I work in the investment business. Thank goodness my wife is a doctor. She would like to add a garage and a bathroom for the basement, but we will probably hold off.
...and read IBD. Even if you’re not going to buy any more stocks in this lifetime (thanks to Bill Clinton and 1993) the editorials are great!
I guess the problem would be in finding a supermarket or a gas station that will accept them in payment.
Real estate because of the low housing prices. Have bought two small waterfront resorts in the past six months that I got for well under value. I’ll hold on to them and let the income from the business build my savings accounts. When the real estate values go back up, will consider selling them and making a profit. My bank also has a 6% checking account which I keep just below FDIC insurable limits.
LLS
I too have been a licensed securities dealer and Mr. K I just want to say...
BINGO!! Everyone knows “buy low, sell high” and yet, most small investors do the exact opposite. Real Estate is down therefore it is low. IT WILL COME BACK, IT ALWAYS HAS. Time to buy and hold. Why do you think China is so eager to buy American assets? Because, right now, they are cheap and they can now buy vast quantities of them. The Japanese did the same in the 70’s and 80’s. Now look at them.
In the aftermath of 9/11, when most small investors were fleeing the markets, large foreign investors snapped up American securities in what was literally a “fire sale.” One Middle Eastern “prince” or what have you, bought tens of thousands of shares of Citigroup. Why? Because its stock price had gone from the mid-fifties to the low-twenties. It was a half off sale.
Have you ever wished that you could have bought IBM or MicroSoft stock when it was first issued? Well, here’s another chance to do so with other companies. THIS is the time to buy.
I’m invested in KY jelly because I know, since I follow the rules and pay my mortgage, I’ll be getting screwed.
I'm not necessarily recommending Southern Company...it's a little pricey right now, but there are a number of solid companies that have historically paid good dividends for decades. Part of your investment strategy should be to buy stock in two or three of those companies, put them in a dividend reinvestment plan and forget you have them for 30 years (other than reporting the income).
At least for now dividends are taxed at a lower rate than normal income. Also, you don't need to go through a broker and pay commissions. Dividend reinvestment plans allow you to purchase the stock directly from the company. I believe Motley Fool has a list of such companies.
I continue to buy Vanguard GNMA Bond Fund, Vanguard Total Stock Market Index Fund, and the Hennessy Focus 30 Stock Fund. I have a long history of buying on bad news and I also have a long history of beating the market indexes and the professional money managers.
If your portfolio is fully invested and you don’t have cash to buy anything, then sell your one or two worst performing mutual funds or stocks over the last 12 months, and invest the proceeds in mutual funds (or diversified ETF’s) that are likely to emerge as “winners” as we work our way through the current financial crisis.
Keep taxes in mind in that, if possible, sell mutual funds/stocks that will produce a capital gain from within a tax deferred pension or IRA and sell mutual funds/stocks that will produce a capital loss from non-pension/retirement accounts so that you can use the capital loss on your tax return.
I do not recommend buying individual stocks unless you have sufficent asssets to diversify so that no single individual stock exceeds one to two percent of equity portion of your portfolio.
My 401k is down -22%. Come October first we have to make changes for the next quarter. I am not sure if I need to keep putting in or use what I was putting in 401k and pay on other things, like extra house payments.
Yeah I’m in the same boat. I just paid my last payment on my house about two years ago.
I’m thinking of investing in another tank of gas so I can go back and forth to work. After that, I’ll be investing in the overpriced natural gas required to keep my house as warm as a crypt this winter.
But, what happens if BO gets in & implements his huge tax on stocks?
Won't everyone be running around trying to sell all at once if he gets in? Wondering if it's not wise to sell now before there is a run on the market.
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DIVIDEND TAX |
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MCCAIN |
15% (no change) |
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OBAMA |
39.6% - (How will this affect you? If you have any money invested in stock market, IRA, mutual funds, college funds, life insurance, retirement accounts, or anything that pays or reinvests dividends, you will now be paying nearly 40% of the money earned on taxes if Obama becomes president. The experts predict that 'Higher tax rates on dividends and capital gains would crash the stock market, yet do absolutely nothing to cut the deficit.') |
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In my totally unqualified opinion, the first thing you need to do is decide on an asset allocation. How much of the money do you want in solidly safe investments, how much in moderate risk, how much are you willing to put in speculative investments. Do you want/need any of the money to generate income? Then make your decisions within each category.
I am not as sanguine about the market as everyone else. I think the next bear market could be more brutal than the last few and as a consequence liquidated a lot of my holdings over the past year and went to six-month to one-year CDs for now. I also like some of the dividend paying ETFs, and bear market ETFs are made for these times.
Congratulations on your investment program! How about taking five grand apiece down to your local bank and buying some series I bonds? They’re solid, provide inflation protection and guarantee you’ll get back more than you invested, these days that’s of some value. You can also defer taxes on them, and pay no state tax when you finally cash them in. They make nice ‘safe deposit box stuffers’.
Think KY Jelly here.
And start practicing those ANKLE GRIPPING exercises while facing AWAY from Washington!
BOHICA!!!
There are two different tactics you can take. I’ll give you my situation as an example.
My husband should be retiring from the army as an E-9/28 in a few years. We’re expecting a retirement check of about $3000. (We’re estimating low just to be safe.)
In order to keep our current lifestyle, we’d have to invest about $500,000 (assuming a steady 8% return on investments, 4% of the interest earned for inflation, after taxes and fees) for us to keep a steady stream of $2000 a month (going up by 4% a year for inflation) for the rest of our lives.
With the market instability, I’ve moved all of our investments into the G Fund (government bonds, etc) to protect what we already have and we’re stopping there.
Right now I’m investing in hard goods which will make it possible to live off the retirement check. I’m learning how to can food, we’re building pens to house chickens for meat and eggs. We’ve spent $600 to better insulate our roof to cut down on heating and AC costs. (Saved us $160 in August alone.) We’re putting in a large garden. I want to put in a well with a solar powered pump, but we won’t be able to do that for some time.
The funny thing is that we can invest less than $40,000 and not *need* the $2000 a month of dividends from a money market account to get by. We’ll have an extra hour’s work twice a day and several days work during harvest time, but we’ll be safely positioned to weather any storm. If things don’t break down then my husband will have work and I’ll be able to pay cash of that dream house I’ve always wanted! :-)
Just another way of viewing the situation.
The way I enter a trade I desire to have stock in, is to sell a put at a lower strike than now. I generate income this way and if the stock is "put" to me, I get it at a better price than when I first thought it was a good buy. As an example, I sold 5 OCT RIG 110 puts for $4.80 last week. I had just allowed 5 SEP RIG 115 puts to expire. If the stock falls to below 110 by OCT, I may average down by selling 5 more puts at a 100 or 105 strike. Remember I wanted to own the shares anyway, so I am just lowering my entry price. I have my own methods for deciding how low the strike might go and use charts and technicals for the entry timing.
I would then sell calls against the shares if they are put to me. I have averaged over 16% return over the last 7 years doing this method. I do have one dud I may have to just take a loss on, however. I used this method for UNH right before it decided to fall 50%. No one can make up that sort of percentage loss in a short period. There have been many companies that have fallen 50% or more this year, so sector selection is vital. I have worked my way out of HOG and a couple of others, but UNH looks dead.
One rule I have always followed my whole life is you can't pay someone to love your children or make you money so I shy away from money managers and mutual funds. If you can't read a chart, buy CD's( or classic cars). I've been investing since Nixon was president and a 500 Dow. Most investors I see now are just guessers and gamblers and don't have the personality to withstand a downturn. Some have never seen a downturn. The people that say this is as bad as the depression obviously weren't alive then or during Carter's years or the Black Monday in Oct '87. I was there during Carter, "87, and 9/11. That's when you make your best money. It can, and most likely will, get alot worse from here. Bubbles don't rise in a day and they don't pop in a day. Always keep some cash for days that scare you. Those are the days you will want to grit your teeth and buy something.
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