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selfdestruct2 (50.61)

Preparing for the worst...?

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September 30, 2011 – Comments (14)

I have a 401K through my place of employment. I am planning on putting most of it into the money market option that's available. Is this a somewhat safehaven if the market crashes ? What if things really get bad ? Can a money market fund tank along with the market in general  ? 

Any advice is greatly appreciated.

14 Comments – Post Your Own

#1) On September 30, 2011 at 7:39 PM, chk999 (99.98) wrote:

A few money market funds "broke the buck" during the 2008 melt down in the credit market. It's not impossible, but not a high probability. A short term treasury fund is probably a little safer, but will pay lower interest.

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#2) On September 30, 2011 at 7:40 PM, TSIF (99.96) wrote:

A money market fund can go sub $1 but that would be unusual and most likely result in government intervention of some type.

It's called "breaking the buck" and it happened a few times in 2008 resulting in a "panic" on the funds.  The Parent company's generally stepped in in some cases without any publicity to shore up the funds.

I believe this is MUCH less likely to occur today than in 2008 as some of these funds used "structured investment vehicles".  Today, most idle funds are more secure and it would take a massive "run on the fund" to cause assets to be sold less than a buck.  Even in the worse cases the funds didn't drop below $0.97 and the Treasury  agreed to "sell insurance" to a stabilization fund similar to the FDIC with banks. 

If you are concerned about the markets and since a 401K cannot be cashed out without a severe penalty in most cases a money market fund would be the best option if you are very skittish.  Keep in mind the general thumb rules that being out of the market during even a small percentage of the uptime days compounds against your future gains, but there are certainly times that "sitting" things out can be an advantage to both your assets and your piece of mind.

A large percent of my retirement 401k is in money funds currently and has been for months. I would not hesitate to recommend the money fund, but I still trade/buy in my trading/investment account that I manage.

Best of luck.

TSIF 

 

 

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#3) On September 30, 2011 at 7:41 PM, TSIF (99.96) wrote:

What Chk999 said while I was typing my usual novella!  ;)

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#4) On September 30, 2011 at 8:10 PM, selfdestruct2 (50.61) wrote:

Thanks. That's very helpful.

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#5) On September 30, 2011 at 9:36 PM, HarryCarysGhost (99.76) wrote:

selfdestruct2

I'm curious as to what your time frame is. I've noticed you've been bearish for quite some time (foregoing the profits to be made), but if you have 15-20 yrs to play with does Mr Markets wild gyrations really matter.

I sold everything that I did'nt view as long term at least a yr ago.

(Yes I still speculate on penny stocks, but thats just the gambler in me, strict asset allocation rules). And yes the benner cycle shows 2012 as a buying opportunity, but why would I want to ditch my low cost basis trying to time the market. Racking up commissions and taxes.

When I'm within sniffing distance of retirement I'll be looking at Money Markets and CD's, and a basket of blue chips.

If everything goes to hell and a handbasket, all this really does'nt matter and you'll find me living in a van down by the river.

Cheers.

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#6) On September 30, 2011 at 9:44 PM, truthisntstupid (94.09) wrote:

Hi Harry!  Well put.  Hey, look at the fear and paranoia in the comment stream following this article

http://www.fool.com/investing/dividends-income/2009/01/12/the-worst-investment-in-50-years.aspx

They blew it.  That was a wonderful time to be buying.  I sure was.

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#7) On September 30, 2011 at 11:03 PM, walt373 (99.75) wrote:

Let's just say if you lose significant money in money market funds, then you really don't want to be in stocks at that point.

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#8) On September 30, 2011 at 11:20 PM, HarryCarysGhost (99.76) wrote:

Thanx Truth.

You know, somewhere in my notes I calculated what laddering CD's at a 5% rate would pay me every 3 mnths. Was'nt a bad deal.

At less then 1% it's a horrible deal.

Much better to DCA into a divi aristocrat.

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#9) On October 01, 2011 at 11:13 AM, TSIF (99.96) wrote:

HarrycarysGhoste and Truth, I do agree with you in principle, but while I would encourage Selfdestruct2 to consider staying at least partially invested as dollar cost averaging, barring a complete economical collapse, will work best in the long run I understand the concern in a 401K account where I have less "control".

Studies have shown that dollar cost averaging works and that since you can't "time the bottom" that being out generally means lost opportunity.

In a 401K plan, however, few have the luxory of picking and chosing specific stocks. You can go for large caps which offer more stability or you can switch to small caps when a recovery is in progress or mix it up for diversity. In a down market, however, you have the insult of the money managers "playing" and making things worse as they liquidate for withdrawals from those running and as they try to "prove" themselves at "end of quarter" as they did late last week.  On top of this you're paying the higher commission.

So overall, I recommend staying invested, watching your mix, but there are times when sleeping at night is more valuable than short term churn.  Just don't get bitter, close your eyes and walk away completely.

TSIF

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#10) On October 01, 2011 at 11:47 AM, NerfBall (< 20) wrote:

truthisntstupid, I followed the llink you posted and read the commentary, and I must say that the gloating doesn't suit you, nor do the insults. Calling people 'stupid' accomplishes nothing at all, and I would hope that you'd be better than that.

Beyond that, you have to look back to that time, when fear was possibly at an absolute high and justifiably so, as trillions of dollars worth of wealth had vanished in the crash of '08 and the continued bleeding of early '09. It was an ugly and awful time. You had retirees who had been 'all in' and had lost nearly everything, including their carefully laid retirement plans. It was the double-whammy of the mammoth housing collapse combined with the massive stock market crash as the mother of all bubbles burst and people were caught in shock and utterly unprepared, and you wonder that people were scared to death at at that time, or mock them and call them stupid because of it?

Rather than that, I'd advise some humility, and some simple gratitude that things have worked out for you. Your postings have been very helpful to many people here including myself, so I'd like to see that kind and helpful iteration of you, rather than the spiteful, mean-spirited and gloating one. Just my .02.

Cheers.

 

 

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#11) On October 01, 2011 at 2:33 PM, truthisntstupid (94.09) wrote:

Nerfball

Wow.  Did I seem that mean?  If so, I sincerely regret it.  

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#12) On October 01, 2011 at 3:13 PM, truthisntstupid (94.09) wrote:

But let's be fair.  Some of those comments were directed at those of us that were "stupid"  enough to be investing at the time!

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#13) On October 01, 2011 at 3:49 PM, HarryCarysGhost (99.76) wrote:

TSIF

Thanx,

Your right on that 401k's are a different beast.

How often can you go to HR and change your setup?

I remember telling my Father to move his into the "safe" part before the dotcom bust.

Thats why I wanted to know the time frame, so I don't offer up some bad advice.

Honestley if I had a 401k and my employer was matching half I would just let it ride. If I were older I'd be more protective.

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#14) On October 01, 2011 at 6:12 PM, TSIF (99.96) wrote:

HarryCarysGhost,

Not sure what you mean by Setup....you can change your percent withheld as often as you want. I can do mine online at Fidelity.  I try to increase my percent when I get a raise as that's the best time before  I get use to seeing it in a paycheck. 

As far as chaning your investment choices, plans vary, but typically you can change in and out about every 90 days without penalties of any sort. Some options, usually REIT, and a few others have a 90 day window where if you trade out you pay a few percent penalty.  In most cases I can trade in/out more often but there are options in my plan that if I "round trip"...put money in and then and back out in 30 days I get a "warning" that I am acting with the characteristics of a "trader" which is "detrimental" to others in the plan.  So I get threatened that if I do it again in a period of time I won't be able to chose that option again.

I get "round trip" warnings a few times a year. There are enough options that I take the risk if I don't feel comfortable with my choices.  Sometimes I think I "know" to much for my own good about equities directly.  I spend a lot of time picking my choices, (there's about 40 in my plan). I look at past performance and then the top ten holdings. Past performance is no guarantee, but it's a start. I find the ones who are top performers for a year or so suddenly go to the bottom so it's worth watching.

There are always a company or two in their top ten holdings that I personally have a "grude" against as far as investing in them.  So it's hard to pick one that I like in total.

Overall, I do watch my 401k options, I do go to "cash" (money market) with large portions when I don't like the situation in the markets, and I've done better than if I'd let it ride, but maybe I was just lucky. 

I try to play the market "pulse" and I seem to do okay at it in a macro sort of way, but "playing" the market is not the best move in most cases for most people.

So while in general the best choice is to be concervative in down times, but stay invested, While I counsel that people stay invested at some level,  I can fully relate to people who would prefer to be ultra conservative at times if it's how their own individual makeup helps them sleep at night. We all have different risk/reward/fears/goals/ages/etc.

If you let it ride and you're in a down period you have to accept it. If you sideline yourself and the market moves up you have to except that you left some gains on the table.  We're in a very unusual time and while those who stayed in from Oct-March '08 came back up better than those who bounced in/out after taking a hit in the beginning, this selloff is hard to take and there's little to put optimistic hope in during the short run.  I like to see the markets change direction before I move in in cases like this, even if I leave a few percent on the table looking for some confirmation.

Both are likely to happen to you at times.  I don't "cry" if I'm mostly sidelined and the markets move up.  I'm almost to the point that my own contributions and the part my employer matches (about 3%) means that I'm increasing my retirement funds even sidelined on thier dime.  Risking 100% including their match gives me a greater sense of loss on down markets.

Good luck!

TSIF

 

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