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Mary953 (77.06)

Newbie needs help. Retirement looming.

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December 06, 2008 – Comments (13) | RELATED TICKERS: BOOM , BWLD , MO

I have just read a set of posts to the following http://www.fool.com/personal-finance/retirement/2008/11/25/the-longer-you-wait-the-more-itll-hurt.aspx?source=iedartthv0000001#commentsBoxAnchor 

Basically, the part that alarms me is that the writers seem to agree that stocks are going to keep falling.  No big deal unless you are, say, a baby boomer who is real close to retirement and cannot really afford to have a big dip right as you say goodbye to your salary.  Yeah, that's just too close to the target.

I was planning to fund IRA and other investments as a mix of growth (Netflix, Intel, Buffalo Wild Wings, Dawson - well they are booked up through Summer 2009 and the management hasn't changed, has it?) and income (Pfizer, Altria, CapitalSource, etc), but now I am no longer sure. It is one thing to play with stock on paper and another altogether to put your retirement on the line. This time I don't have time to build back from a major hit from government "help" or stock market crash. What advice could you suggest before I put my money on the table? Hold 'em or fold 'em?

13 Comments – Post Your Own

#1) On December 06, 2008 at 5:26 PM, columbia1 wrote:

Your first paragraph answers your question!- "if you are a baby boomer who is real close to retirement and cannot really afford to have a big dip" than your are too close for jeopardizing your retirement to risk it playing in the stock market :)

I personally would put no capitol to work in the stock market if I were with-in ten years of retiring and could not afford to retire with-out that money I have now, I would be happy just earning 3% in a money market account. Now is not the time to get greedy, be happy you have some money for retirement, the risk just would not be worth the reward! That is just my opinion, but I hope it helps :)

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#2) On December 06, 2008 at 5:57 PM, johnw106 (57.04) wrote:

I second columbia. If you are within a year or three of retirement do not risk your welfare and wellbeing in equity stocks.

You can get into the market of course. But be prudent. Maybe 10%-15% of your money in anything risky (IE: the stock market). Put the bulk of it into safer areas like CD's , and savings accounts that are FDIC insured. Better to match or edge out inflation and have money than to lose it just when you need it most.

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#3) On December 06, 2008 at 6:07 PM, joeykid13 wrote:

Well, in my opinion...at this time you should have your money in CD's in one of the bailed out banks.  Since the government has opened Pandors's Bailout Box, your money should be safe there...or at least backed by the full faith of the US Government...which for now, is OK...at least for one more year.  As far as buying stocks...right now you should focus on preservation of wealth...rather than profit.  The profit days are over...at least for the time being.  Risk taking is NOT for retirees...at least not in this environment.  If I was retiring...and my net worth exceeded the FDIC limits...and I needed a place to sock the extry millions I would own only two stocks...McDonalds Corp. (MCD)...which pays a solid dividend...and does well in any economic situation...and Wal-Mart (WMT).  I am projecting the bankruptcy of at least nine national retailers next year, and I suspect the folks in Little Rock are chomping at the bit.  I would totally avoid mutual funds...as the dynamics of investing have changed so rapidly...that even the most seasoned managers are scratching their heads and rolling the dice.  Congrats on your pending retirement...I'm sure you have earned a comfortable one.

All the best,

JKXIII

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#4) On December 06, 2008 at 6:16 PM, TimothyVR (< 20) wrote:

Columbia says that if you are ten years away from retirement you should not put money in the markets. John W says if you are one to three years away you should not put money in the markets - yet he says he agrees with Columbia.

There is a dramatic difference between 3 and 10 years.

Altogether extremely confusing, as I am about 17 years away.

Well, it really is up to each of us to do our homework, isn't it?....

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#5) On December 06, 2008 at 6:42 PM, anchak (99.85) wrote:

Most of the above comments mean well ...However, I would suggest you try to put it thru a quasi-quantitative sieve ....as TimothyVR points out.

(1) Go to the following Mutual Fund websites - Vanguard and T Rowe Price ( you could very well be a fundholder already) and read thru their Retirement Date funds...... What you want to note down is the asset allocation profile of the fund nearest to your Retirement date. Vanguard one would be very conservative, while the TRP one a little more aggressive. Take your pick - average it, weight it - whatever.

That generally gives you an idea of what your exposure to stocks should be.

(2) Next go to MorningStar and get a Portfolio X-ray : to verify what your TOTAL exposure to stocks are.

That should provide you with an early decision point - if it returns that YOU should OWN stocks now - then continue. ELSE EXIT.

(3) I looked thru your favorites - Seth ( TMFBent) is a good choice. Suggest look into abitare ( He's probably, the smartest BIG-BEAR here on the fool - he's a fav of mine and I am probably one of his more skeptical followers) - but as I said he's smart - and you want to get his dose of  economic read. I personally agree - that the economic situation is precarious - however that doesn't necessarily translate into future stock market direction.

The next guy I would suggest probably would be Demondoug and EverydayInvestor. And between them and their groups/favorites you'll find a lot of people you personally like.

(4) Warren Buffet says : He sees the market going up in the LONG TERM. abit says he sees the market going down in the SHORT TO MEDIUM term. Both of them could be right.

Thus for you : if you think and think HARD : if you can survive the first 10 years of your retirement on your CURRENT savings ( no probabilistic assumptions) and withstand LIFE events, loss of salary for the period - if you still come up with investible cash, then you could possibly pursue investing currently.

(5) Doug(Demon) is following Zero-Debt Balance Sheet companies. You really want companies like that - Low Debt and High on Cash to withstand this downturn. Small Cap investing can be extremely profitable - however it comes with its own risks.

All the best! 

 

  

 

 

 

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#6) On December 06, 2008 at 8:01 PM, Mary953 (77.06) wrote:

You are answering some major questions with advice that I wish I did not have to hear.  I need to know it now though. Once savings are gone all of the good information in the world cannot bring them back. I appreciate this a great deal.  Obviously most (almost all) will be in extremely low risk or FDIC insured vehicles and I will be looking at the stock market as a gamble not unlike a casino where even blue chips may not hold their value.

Pushing my luck here with one more question:

Anchak - I am familiar already with the posts of some of the guys you mentioned, and I have enjoyed reading comments from TMFBent and Demondoug, but what is a Zero-Debt Balance Sheet company?  Also what would I look toward to learn about Small Caps.  And yes, I am listening to what all of you are saying about risk. However, I am about to have the obligation of a sum of money handed off to me. This was invested in such winners as Fannie Mae and Freddie Mac among others. I will not be using it for myself although that was the intent, and this trust has been allowed to sit and wither for the last year or so - Not a good time for investment money to be ignored. I want to do my best with it and hand it on intact. Consider it an insurance of sorts from parents to children to grandchildren and on.

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#7) On December 06, 2008 at 10:47 PM, anchak (99.85) wrote:

We are blabbering bunch at the fool anyway - so ask away :)

Incidentally, just FYI - I am 20+ years away from retirement, just so to give you perspective on the source.

Ok...if I understand correctly since you are looking not to utilize ( ie consumption ) these funds - possibly for a perceivable generation - I would interpret these as perpetual funds - ie almost infinite /long term time horizon/duration. That in essence is an investment/financial utopia.

 (1) The simply obvious: About 60-70% of your funds need to go to to an S&P Index fund ( or ETF - possibly better in your case). NO REALLY.

Some people may scream bloody murder - especially the folks here at the fool ( I am hoping its not TMFJake or Chris) who keep flashing the ad about the couple who put their life savings (10k) in 1958 in Berkshire Hathaway and are multi-millionaires today,  but on such a long horizon to take on company specific risk - well you are hoping for both fortitude and extreme luck.

Here's a chart

http://finance.yahoo.com/charts?s=GE#chart1:symbol=ge;range=my;compare=^gspc+fnm+fre+c;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Its a comparison of General Electric against S&P 500 from 1962 with 3 other companies thrown in - Citigroup, Fannie and Freddie.( My empathy lies with you - since you mentioned those 2)

More importantly, the key point to notice is you'd done very decently with the S&P compared to GE till the 1990s. And we all know what really happened from there - under Jack Welch , GE Capital became his brainchild, GE became this growth engine stock - but look at it from this perspective - I do not think Edison would have envisaged either of those events when he was running those experiments from his shack in Schenectady.Its almost inconceivable to imagibe GE undergoing liquidity/capital constraints crisis - but that's what has happened today.

Too many words to illustrate a simplistic point, anyway.

(2) Individual Stock Investing: You WILL have to actively manage it, if you pursue this. If you enjoy that kind of stuff - you are most welcome.

Small-Caps: You chose DWSN. Lot of us like them - they are a clean balance sheet company- I am a follower of a small cap investing board called thestinkyfeet ( You can find it under Discussion Boards in the Top tab of MotleyFool, and the board itself is a CAPS player - and its picks are all listed on the pitches) - where all members are bullish on DWSN - but not too many people ( other than StockSpreadsheet - incidentally, a great guy for small cap picks. Also the founder - madcowmonkey is a great guy, and you have Tastylunch - who I think presciently called the final leg of teh demise of FNM/FRE based on the Mom&Pop reaction to a weekend Barron's article ) want to enter the stock - and I think his investment club just held thru. Currently DWSN has neglible Debt and is trading below Book Value and < 4 Trailing P/E. Crazy - but that doesn't mean it can't drop to $10 from here - I picked it in caps a month before at $20.

Volatility is EXTREME. - actually understatement of the century.

Zero Debt Balance-Sheet: Essentially given the evaporation of liquidity ( ie ready credit in financing either from banks/market) - you want companies which are essentially savers/responsible. Hence like good people they will have very little borrowed debt ( You can see that on the Key Ratios tab of a stock here at the fool - LT Debt ratio and Debt Ratio) - lesser the better ( less than 20% ie 0.2 is good in my view - Doug goes for ZERO). Additionally, I like companies who are cash generation cows. Low debt is good - but compare that to individuals who have had no problems that way - but have suddenly job loss/income curtailment problems. Net net, steady generation of CASH is king. You can do these on a lot of screeners.

Doesn't mean these companies are winners from a stock return perspective though. Key assumption here is - they will be SURVIVORS - and hence possible not a wealth destroyer going forward. Google always comes tops in these screeners - its a fantastic company - and it will survive, question is at what P/E are you willing to own it ( at $240 it was at 15 time trailing P/E - the problem is there are lot of skeptics out there - who believe that Google won't be able to grow at 15% over the next 12-18 months -which means downside risk). And even today Google is at 3.4 times Book Value.

(3) I assumed a lot. If you are new to Investing: Suggest do searches on the Fool about reading material. My pick would be "Intelligent Investor" by Benjamin Graham - who was Warren Buffet's teacher and a legendary investor.

 

 

 

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#8) On December 07, 2008 at 12:38 AM, Mary953 (77.06) wrote:

First - Thanks. A Lot! And it doesn't matter if you are 2 years or 20 from retirement. Each person has a different skill set.  You obviously know a great deal about this and have a way of explaining it that makes it understandable.  That is something I really needed. I haven't used my investing skills in a very long time (I think Carter was in office and money market funds were bringing in 12-14%) I do remember the enjoyment of spending money only to have it handed back to me with more money tacked on so I could spend it again.

I do enjoy actively managing individual stocks.  I have created databases (while Gates was in grammar school), worked as a reference librarian, and a tax consultant determined to find the most money for every person who came through the door.  I enjoy detail work, especially when I help someone.  For myself, retirement funds would go to the caution and care of the first posts.  Those are the routes I will need for the money I expect to see me through my retirement.  I am grateful for every bit of that advice and I would not have known of any of it so thank you all.

For the second portion, it is being handed on to me by parents that worked hard to create it.  I cannot feel a sense of ownership except for that one silent NOOOOOO screaming through my mind when one of them told me that it was safe in government funds like Fannie Mae and Freddie Mac and they had steered clear of Enron (Really)  I feel more of a sense of obligation to the future and a chance to do a good job for them.  In a very real sense, I am building the education fund they wanted for their grandchildren and greatgrandchildren and an emergency fund just in case.

Your help is amazing. I am actually looking forward to this. Yes I am new to investing but I will keep my wild leaps of imagination to TMF  CAPS and learn slowly and cautiously with the real money.  And any more advice will be gratefully accepted.

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#9) On December 07, 2008 at 11:29 AM, abitare (33.88) wrote:

1. Do not retire if you can help it. Unless you have net assets over $1 million, you will not likely have enough to stay comfortable.

2. Stay employed as long as possible. Unemployment is going to reach new highs.

3. Take the Crash Course I just posted and I think you will understand my view.

R,

Top Foo1 21 Nov 08

Current Scoreleader, here in Fooldom. 

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#10) On December 07, 2008 at 3:37 PM, nuf2bdangrus (< 20) wrote:

As someone who does this for a living, here is an approach I would take.

 

1)  Build an assett allocation model; 100-your age should be your max equity exposure.  That does not mean put all your equity exposure money in at once.   Draw up a list of half growth and half solid dividend players, look at some charts with some recent lows, and set some limit orders to buy half your each stock at that price.  Have enough picks that you have the chances of getting some.  The trick here is to buy other people's panick.  A growth pick might be RIMM.  look for it in the low 30's, or if it holds 40 for a period of months.  I'd love it at 20, and a real ugly 2009 may offer it.  Look for other growth picks in health care and tech.  Then look for some solid dividend plays.   Individual stocks might be MO, PM, VZ,, or an etf such as LQD or PFF.  LQD is rock solid at 90.  Once fell to 80 on a panic.  I'm hoping iot does again.

 

Now, for the rest of your $, look for an allocation of CD's and some investment grade bonds (some of your bonds can be high yield if you buy them low enough...jnk, hyg.....BTW bonds probably offer a better risk/return that stocks do for the foreseeable future.  You can buy bonds of banks trading at a discount, buy one that the Fed is behind.  

For the stock portion///Most people like no load mutual funds, but one I really like is a load....Jeremy Grantham's Evergreen Assett Allocation Fund.  Read his newsletters, he's been spot on.  25% of a portfolio ought to go into such a fund as a core holding. He's stock and bonds, so adjust accordingly.  I don;t like index funds, as an ETF can do the same.  You need active management at this point to navigate forward.

 

Reallocate your portfolio every year, or on major moves.   You must take sizeable gains when they occur. Thus, if you buy RIMM at 35  and it hits 70 2 years later, take your COST basis out so the rest is the house's money.Buy bonds, some fixed income with gains from stocks/funds. Biggest mistake the public makes is falling in love with winners. Must take gains.  must must must.  Move them to fixed income.  Thus, if you are 55, your max equity exposure is 45%, and only half of that should be in stocks, and half of that in individual stocks,.  55% fixed income, i.e. CD's or bonds.  Pick your prices, and panic will give you a chance.  HOpe this helps a bitWritten a bit on the fly.

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#11) On December 07, 2008 at 4:24 PM, Mary953 (77.06) wrote:

Got it. I understood all except for one bit.  What is a limit order and how do I do that?  I(I know this seems like Investing 101 to you)  If I remember correctly, a limit order is where I specify the price at which I am willing to buy a particular stock, but I don't know how it works. 

And this is all truly amazing and so much more than I dared to hope for.  You guys are absolutely the greatest!

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#12) On December 15, 2008 at 11:08 AM, EnigmaDude (93.12) wrote:

Mary,

Your question about a limit order is one that I can answer (and I am no expert!)  So here is the explanation:

You place a limit order by specifying the highest price you are willing to pay to buy shares (or the lowest price to sell) when you place your order.  So if GE is trading for $17.00 and you want to pick up 500 shares for no more than $16.00/share, you would place a limit order for 500 shares at a limit of $16.00.  Then if the asking price drops to $16.00, you will have purhcased 500 shares.  If the share price never drops all the way to $16.00 by the end of the market day, your order will expire.

How you do it depends on who your broker is.  I use Scottrade and there is a pulldown list of trading options where you select a limit order (the default is a "market" order where shares trade at the current market price, which can change rapidly).

Good luck!

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#13) On June 23, 2009 at 8:06 AM, GreenCollegeGrad (78.41) wrote:

First off Mary, I have been reading your help guides, and they have been quite instructive, so thank you.

Id like to now try to return the favor (though i am on no sleep atm, so forgive spelling or a lapse of logic here and there.) I do investments and insurance for a living, specializing in retirment planning. Im unsure of how many years you have left until you wish to retire, so I am going to give you a generalized version of what in my opinion is best for you. At this point in the game the money you have accrued is what you are going to be living on, and in no way should we be taking liberties with the majority of it. My advice would be to take 60-70% and place it into a FIXED annuity. A fixed annuity can range from 5-8 years, offers you a rate of return anywhere from 4-5.75 percent, all tax defered, and is guarenteed by the goverment. Furthermore, if you turn 59 1/2 while still waiting for the fixed annuity to mature you are able to take out up to 10 percent with no penalty. By doing this the bulk of your assets are safe, beating inflation by a point or two, while still giving yourself the luxury (if you have the capital) to use that additional 30 percent to play it semi conservative in the market. I hope that this has been clear, im beyond exhausted, but would be happy to go into further detail with you if you wish to get into your situation specifically and what recomendations I would have for you. My email is danielstagnarogreen@yahoo.com

 

Again, thanks for the instructive guides and hope I have been a bit of a help myself.

Dan

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