View Full Version : Paradigm shift from trditional investments ???
Just look at some of the recent discussions here on this board. We've discussed art as an investment,ultra low returns on I'bonds,and future economic growth at around 2%.Interesting.
Let me share my thoughts.
1) We've recently re-fi'ed at a 3.4% for 15 yrs. on our home.I think that is great.The rate is so low that I don't foresee us paying extra towards principal as an investment.
2) I don't trust that our gov't. will leave 401k's and IRA's alone for the next 20 yrs. when I'm ready to start drawing money from these instruments,so I avoid them.
3) I no longer have faith in the stock market.
So, the question I ask myself is where do I invest my money to earn a future return if I don't trust the traditional institutions? It is obvious from some of the recent discussions here that others are struggling with this question also.
For me, I think the answer is becoming clearer. I own 18 acres that need a lot of improvement.Money I pour into my land should pay me back later.I'm thinking fencing and a greenhouse.Obviously,not everone has this option.What are others doing to invest outside the box?
iris lily
11-28-12, 10:07am
Yesterday on the radio was an interview with a stock market expert. Apparently people have dropped out of the market in droves. There is a lot of cash sitting around. But when this expert said "the 2008 crash was a once in a lifetime event" I turned off the radio because I don't believe it, and predictors make me angry. I would have listened to his talk if he were merely summarizing what was going on with Americans and their investments.
What's going on with Americans and their investments is that they don't know where to put their money.
Not any help, am I? DH recently dumped money into blue chip stocks after hand wringing for a year.
sweetana3
11-28-12, 10:44am
Did they drop out because they wanted to move investments out or did they drop out because they have no money now to invest?' These articles are usually so full of bad info or poorly researched information. "Stock Market Expert" is probably no better than the palm reader down the street. Now when Warren Buffet speaks, I listen. But even George Soros has had those Duh moments. So I listen, think, research and do what I feel is best.
We have remained invested according to our asset allocation and have thrived. However, we have lived thru numerous crashes which have occurred for a variety of reasons and lived to tell the tale. I think we are currently at a 50/50 allocation with no debt and reasonable living expenses. Our 50% is allocated within a variety of markets and mostly now in index funds covering those markets.
Anyone who could not fortell the real estate crash was not old enough to understand just how radically and stupidly the market had changed from the 70s and 80s.
SteveinMN
11-28-12, 11:25am
So, the question I ask myself is where do I invest my money to earn a future return if I don't trust the traditional institutions? It is obvious from some of the recent discussions here that others are struggling with this question also.
For me, I think the answer is becoming clearer. I own 18 acres that need a lot of improvement.Money I pour into my land should pay me back later.I'm thinking fencing and a greenhouse.Obviously,not everone has this option.What are others doing to invest outside the box?
You've imposed an interesting set of investing restrictions on your investment. I'm not entirely sure your assumptions are actionable, but everyone has a different tolerance for risk and a different set of things they will and won't do, so....
I think a key is to reduce expenses to the point so you can get by with a lower rate of return. If I can lop $500 a month of our living expenses, that's $500 a month that I won't need later. Of course, everyone has their own floor: there are no $450 rentals here and, right now, we can't get by without a car.
But the choices for investment (nevermind preservation of capital) are few. It's not hard to argue that the equities market is rigged against small investors. It's probably a safe bet that tax rates will be going up in coming years, no matter what Grover Norquist says. We just have to take advantage of the investment options available to us with the information we have right now. Real estate is one option, though we've seen in recent years that there's no guarantee you'll get out of a property what you put into it.
I guess beyond that, we're really not investing outside the box. I don't see good options for us outside of it.
We just have to take advantage of the investment options available to us with the information we have right now.
I guess beyond that, we're really not investing outside the box. I don't see good options for us outside of it.
My attitude has changed drastically since QE1. I am a mouse that refuses to continue to run down the narrow passageways of the laboratory maze.
I think that to invest outside the box,one must become very specilized in a narrow field.Take the art investing as an example.Someone willing to educate themselves and work hard, could probably do well as an art investor.I feel that passive investing of any sort is becoming a riskier option.
Disclaimer:I made a error in my OP.My wife still puts the minimum in her 401k in order to receive a match.I had forgotten about that.
An excellent question for which I don't have an excellent answer. I'm not sure that there is any perfectly safe haven that will give better that average returns and it is a mistake to avoid all risk. One of the best investments as I see it is paying off debt. Land is so dependent on location that I can't comment, but past history shows that it is as vulnerable to price fluctuations as stocks. Land has it's value in the worst of times if it can be productive in terms of food, lumber, or other tangible product.
My humble opinion is that one of the keys is diversity. What ever the choices a person picks, he/she should spread the investments over different categories. I'm for the most part in traditional things like stocks and bonds, but also have a home that is paid off, a smattering of precious metals, and a conservative amount in the safer havens like CD's and government bonds. I'm taking a second look as we speak, but from my perspective it has worked out fairly decently so far.
Blackdog Lin
11-28-12, 8:51pm
Just my own personal paradigm shift: (1) out of debt and firm in our resolve to stay that way; and (2) concerned more with the preservation and return OF our capital, than the preservation and return ON our capital.
We are still staying the course with index funds in IRAs and 401k type program mostly because we aren't sure where else to put it.
Sure I'd like to take the high road and boycott the ugly big businesses, not give them any of my money. But as I see them get larger and more diabolical as mentioned in the marketing thread earlier, I sort of feel that the only way to not lose too much ground is to get in the game and take my cut however small it may be.
I suspect interest rates will stay very low for an extended period of time like in Japan. So not much profit from interesting bearing accts.
We feel property would be a heavy weight around our necks and limit our flexibility. Too many horror stories about tenants from friends, hurricanes, etc
Would love to be a venture capitalist and help those with great ideas come to market such as the liquid metal battery idea but my pockets aren't anywhere deep enough to be of any help.
ApatheticNoMore
11-28-12, 10:18pm
I don't trust that our gov't. will leave 401k's and IRA's alone for the next 20 yrs. when I'm ready to start drawing money from these instruments,so I avoid them.
How do you not trust the government to leave them alone and why would you trust them to leave other investments alone then? If you are just suggesting Roths might become taxable in the future or something, yea that would be one thing, taxable like other investments are now, I could see it happening, though yes it would be the breaking of a promise. If you are suggesting as some do that the government will seize these assets or something then tell me why would they not seize a bank account, a non-retirement stock investment, etc.? They do KNOW about these other investments as well. When you have an IRA, the trustee of the IRA or whatever (the investment company) reports it to the government. And when you have any type of taxable investment YOU report it to the government. At least you do if you are legal on your taxes, if you are also practicing tax evasion out of distrust of the government, hmm, well ... not going to say anything about that, just to say if you are using any standard stockbroker or bank and hit a threshold of reportable taxable income they are reporting any taxable income to the government as well. Now if you are buying gold and silver coins for cash, from the local coin dealer and know they don't report, I guess you might be evading the government. If you are putting it all in bitcoins you almost certainly are, but hmm "my retirement plan is bitcoins", that would be a new one. Logically if the investment must be hidden from the government or unlikely to ever be seized by it, it has to be highly inconventional I think.
Sure I'd like to take the high road and boycott the ugly big businesses, not give them any of my money. But as I see them get larger and more diabolical as mentioned in the marketing thread earlier, I sort of feel that the only way to not lose too much ground is to get in the game and take my cut however small it may be.
Yea it's my thinking too, it's a very hard system to escape. Sure I'd rather not support this system, at all but ... stocks in multinational corporations or war bonds (I can hardly see supporting the government as the higher road when wars are happening) or ... starve in the streets in your old age. Hmm, lovely.
We feel property would be a heavy weight around our necks and limit our flexibility. Too many horror stories about tenants from friends, hurricanes, etc
oh yea climate change will radically change property valuations IMO, as will economics (a place becomes bad for housing valuations if there are no decent paying jobs there anymore), and for sure don't buy the beachfront stuff on the east coast :)
Me personally, I invest pretty diversely, stocks, bonds, currencies, cash, etc. and hope *everything* doesn't crash! :\
iris lily
11-28-12, 10:29pm
Did they drop out because they wanted to move investments out or did they drop out because they have no money now to invest?' ...It was his contention that they were scared off and weren't gonna try that again.
But of course when he said that the 2008 event was the drop of a lifetime I thought "buddy, you must be about 22 years old" and I expect he will experience several market lifetimes events.
Anyone who could not fortell the real estate crash was not old enough to understand just how radically and stupidly the market had changed from the 70s and 80s.
I know, exactly.
ApatheticNoMore
11-28-12, 10:50pm
Anyone who could not fortell the real estate crash was not old enough to understand just how radically and stupidly the market had changed from the 70s and 80s.
Yea but prices are going up again, without any fundementals to support it (unemployment is high, wages aren't up much), it's happening all over again I guess, even though it *just* happened! So if the before 2008 boom was fake this one must be as well, or? Not of course that I believe it is at all just market and hysteria driven, although there's that, but it's a very manipulated market at this point. Manipulated enough to make the 2008 boom real? Bring the dream to life? First as tragedy and then as what, farce perhaps yes?
How do you not trust the government to leave them alone and why would you trust them to leave other investments alone then? If you are just suggesting Roths might become taxable in the future or something, yea that would be one thing, taxable like other investments are now, I could see it happening, though yes it would be the breaking of a promise. If you are suggesting as some do that the government will seize these assets or something then tell me why would they not seize a bank account, a non-retirement stock investment, etc.? They do KNOW about these other investments as well. When you have an IRA, the trustee of the IRA or whatever (the investment company) reports it to the government. And when you have any type of taxable investment YOU report it to the government. At least you do if you are legal on your taxes, if you are also practicing tax evasion out of distrust of the government, hmm, well ... not going to say anything about that, just to say if you are using any standard stockbroker or bank and hit a threshold of reportable taxable income they are reporting any taxable income to the government as well. Now if you are buying gold and silver coins for cash, from the local coin dealer and know they don't report, I guess you might be evading the government. If you are putting it all in bitcoins you almost certainly are, but hmm "my retirement plan is bitcoins", that would be a new one. Logically if the investment must be hidden from the government or unlikely to ever be seized by it, it has to be highly inconventional I think.
:\
OMG!! Really? Would you please explain how you concluded that I was advocating tax evasion in my post.I would seriously like to know.
There has been talk for years about nationalizing gov't. sponsored retirement plans.I'm not aware of anyone seriously discussing doing the same to private accounts at this time.I believe the masses of people in this country would willingly accept this.Why? Because most people don't have much saved for retirement.They would just think of it as taxing the rich.I am planning accordingly.You do whatever you think is best for you.
SteveinMN
11-29-12, 12:40am
I think that to invest outside the box,one must become very specilized in a narrow field.Take the art investing as an example.Someone willing to educate themselves and work hard, could probably do well as an art investor.I feel that passive investing of any sort is becoming a riskier option.
Not me. Specialization in a narrow field takes a lot of time, especially if you have something else to do in your life (career, kids, elder care, whatever). Then you've got to pick a field that people cannot abandon. The art market coughs every time the stock market sneezes. People don't need to buy art.
They do need to have shelter, and we see how many people who were making money in real estate in 2006 weren't making it by 2008 -- skilled people, people for whom real estate was their lives. Frothy market? Maybe. But a frothy market could happen anywhere. In addition, business is concentrating at a rate that makes it hard to be the educated outsider. Even a highly-educated single investor doesn't get a shot at the next Apple or Google -- or Facebook. That advantage is left to the big investment houses. Not a great example, but I hope you get my drift.
As I see it, specialization like that is an even bigger bet than putting your money in index funds or government bonds.
ApatheticNoMore
11-29-12, 3:13am
OMG!! Really? Would you please explain how you concluded that I was advocating tax evasion in my post.I would seriously like to know.
I don't think you were. But if you report taxes, the government knows where your investments are, it does even if you don't if you use standard investments and earn interest/profits (banks, brokerages etc.), because they report. I don't know that I really see tax evasion as really moral or immoral actually, I can see why one would have moral problems with the government (mostly the wars and financing them is where I'd have lots of sympathy), but paying taxes is usually practical, compared to risking IRS trouble.
There has been talk for years about nationalizing gov't. sponsored retirement plans.
I have never heard this talk except where tinfoil was everywhere. But I will believe to a lesser or greater degree plenty that is not quite mainstream, I'd just need some evidence to go on (a link?).
I'm not aware of anyone seriously discussing doing the same to private accounts at this time.
I'm not aware of anyone seriously discussing doing it with retirement accounts. Have their been any actual legistlative proposals even if they went nowhere? So I just think the argument for that is that it is the government and it could do anything. Yea, the nature of goverment, monopoly of force, it could do anything including seize non-retirement accounts. And one might argue the government is heading in bad directions or becoming less accountable to the masses etc., thus making it more likely to do bad things. But the way I see it retirement accounts basically are private accounts. There is not much difference between money in a mutual fund in an IRA and money in a mutual fund in a taxable account. The difference, the only legal difference that I am aware of, is tax treatment. If there is some legal difference in property rights between the two accounts I am certainly not aware of it. 401ks are temporarily at the keep of your employer, but if you leave a company are easily rolled over into IRAs and then really aren't much different than any other private account as far as I know. If there is some legal difference that suggests retirement accounts would be seized and the others wouldn't I am not aware of it.
I am planning accordingly.You do whatever you think is best for you.
I'd plan accordingly if I had basis to believe retirement accounts would be any more likely to be siezed than non-retirement. What is the basis for that? Actual legistlative proposals? Different property rights claims? Thinking retirement fund holders are somehow a less important political constituency than non-retirement and thus will be sacrificed? (a different constituency I'd believe, it's how the middle class holds stocks generally, and most stocks are not held by the middle class).
The US gov't/Dept of Defense is one of the largest employers in the world and it does have it's own 401k type program called the Thrift Savings Plan. Surprisingly it has one of the best 401k programs I've seen. Good basic index funds w/the lowest expense ratios I've seen anywhere. They keep it simple!! I was shocked when I saw it.
After experiencing other 401k programs such as Soloman Smith Barney, Wells Fargo Programs, etc with the highly managed expensive funds, I would like to see 401k type programs reformed to be as inexpensive and simple as the Thrift Savings Plan.
https://www.tsp.gov/index.shtml
It is also the first program that allows us to contribute to the legal limit in a deferred retirement plan and not limited to just ~6% of pay or so.
Of course, this may not last.
http://cashmoneylife.com/can-the-us-government-seize-your-401k-or-ira/
There has been no proposed legislative bills to nationalize 401k's that I'm aware of,yet.The whole notion has been born from comments made from participants in political think tanks.I don't consider myself a conspiracy nut.However,the writing is on the wall.Our gov't. is in serious financial trouble.No one is buying our bonds.The Fed is having to create money in order to insure the bonds get sold at auction at the current manipulated low interest rates.
If the gov't. created a new retirement program that would convert everyone's 401k's and IRA's into a "gauranteed" pool of gov't. bonds the public would probably not balk at the idea.And the gov't. would get to divert a major crisis situation,atleast short term.
Like I said earlier,everyone has to make their own decisions.To me,gov't. sponsored 401k's and IRA's don't meet my risk/reward criteria,unless matching contributions are involved.
I have a good friend that has been socking away lots of money in his 401k over the years.He is seriously considering resigning from his good job just so he can access his 401k because of his fears of what I just discussed.Are his fears justified? Only time will tell.
In my own case impatience has ALWAYS cost me more than any market shift. After discussing this with a family member who happens to be quite knowledgeable I've become more likely to purchase warrants for certain industry leaders that don't come due for 7 to 10 years. I'll check on them in 5 or 6 and enjoy the free time until then.
flowerseverywhere
11-29-12, 8:59am
diversify has been the mantra of financial experts since I started saving in the mid 1970's. Whether it is CD's, savings bonds, stocks, land, art, housing etc.
But I feel our biggest advantage is having skills, no debt and lowering our expenses. We can cook, fix stuff, grow food, bike long distances etc. When we buy something we try to buy something as well made as we can find and take care of it.
If they don't touch social security when we start collecting in a few years we can live comfortably on SS alone (although we don't plan to).
Personally I would not touch art, coins, beanie babies etc. as an investment. Like many others we have a collection of stuff that someone spent a lot of money on that we inherited and we don't know what to do with it as the value is much lower than what they spent.
Like I said earlier,everyone has to make their own decisions.To me,gov't. sponsored 401k's and IRA's don't meet my risk/reward criteria,unless matching contributions are involved.
I have a good friend that has been socking away lots of money in his 401k over the years.He is seriously considering resigning from his good job just so he can access his 401k because of his fears of what I just discussed.Are his fears justified? Only time will tell.
Employer match contributions into a 401k are pretty much like free money. I would have to have some good evidence that 401k's were in danger and that I was going to loose my savings before I would forego that benefit.
I have heard some very slight rumblings about 401ks being at risk of being nationalized, but it's not especially that the money is at risk of being lost. And I'm not buying it (yet).
To me,gov't. sponsored 401k's and IRA's don't meet my risk/reward criteria,unless matching contributions are involved.
Rogar,
Did you miss this part? I agree,free money is hard to pass up.
Rogar,
Did you miss this part? I agree,free money is hard to pass up.
I did miss that.
I might add that since I'm not longer employed I've rolled my 401K into an IRA and every year am converting a portion of that to a roth. I pay some taxes up front, but will have more control of things later.
ApatheticNoMore
11-29-12, 12:50pm
The tax savings, not to mention the tax hassle on Roth's and even regular IRAs alone is worth a lot. So converting them all to taxable accounts makes a massive tax hit due every year (and if it's a mutual fund much of the tax hit isn't even real gains, it's due to churn). I'd need more evidence for this as well. At best if you do this I'd look for accounts that are carefully managed in such a way to limit tax liability until sale, otherwise hello neverending tax nightmare.
I agree with the guy who opined that bear markets exist to return stocks to their rightful owners. I try to remain invested in a debt/equity mix that I periodically rebalance in the (I think reasonable) hope that if I buy shares when others panic and dump their investments and sell shares when others are irrationally exuberant I will benefit both from the long term growth of the economy and the foolishness of my fellow man.
However this doesn't mean I don't also try to maintain a reasonable cash reserve. I also agree with the guy who said that markets can stay irrational longer than you can stay solvent.
SteveinMN
11-29-12, 1:53pm
I have a good friend that has been socking away lots of money in his 401k over the years.He is seriously considering resigning from his good job just so he can access his 401k because of his fears of what I just discussed.
If your friend is not really close to 60 years old or withdrawing according to 72(t), the current laws around accessing 401(k)s will cost your friend (in penalties and taxes) about half of what he has so studiously saved up. I'd have to be pretty d--n scared -- and pretty d--n sure -- that the rules around deferred-compensation plans would change so drastically before I made that gamble.
I try to remain invested in a debt/equity mix that I periodically rebalance in the (I think reasonable) hope that if I buy shares when others panic and dump their investments and sell shares when others are irrationally exuberant I will benefit both from the long term growth of the economy and the foolishness of my fellow man.
However this doesn't mean I don't also try to maintain a reasonable cash reserve.
This is our philosophy as well, and it has served us very well during the great recession. Our current net worth is 2.665 times what it was at its lowest point in 2009 (on March 9th), and it wasn't too shabby then even after some significant decines in our account balances. I was going to say losses, but that would be inaccurate -- we didn't lose ANYTHING during the recession, because we didn't sell anything at a loss.
At current spending rates, which we could reduce if needed, we have about 3 years of annual spending in cash or equivalents. My goal is to get that to the point where we could pay off the mortgage in cash if we needed to -- we're about a year away from that goal at current mortgage paydown/savings rates. We probably wouldn't do that -- would make more sense to sell the apartment and take our substantial gains elsewhere.
I guess if you don't have much and are at risk of being wiped out by another extended economic downturn it makes sense to be conservative if you have worries about the stability of the markets. But we are at a point where it would take something pretty major indeed to wipe us out, so I am comfortable keeping our money in the market, where it has done good things for us, as long as we have that significant cash reserve to fall back on. YMMV.
lhamo
This is our philosophy as well, and it has served us very well during the great recession. Our current net worth is 2.665 times what it was at its lowest point in 2009 (on March 9th), and it wasn't too shabby then even after some significant decines in our account balances. I was going to say losses, but that would be inaccurate -- we didn't lose ANYTHING during the recession, because we didn't sell anything at a loss.
At current spending rates, which we could reduce if needed, we have about 3 years of annual spending in cash or equivalents. My goal is to get that to the point where we could pay off the mortgage in cash if we needed to -- we're about a year away from that goal at current mortgage paydown/savings rates. We probably wouldn't do that -- would make more sense to sell the apartment and take our substantial gains elsewhere.
I guess if you don't have much and are at risk of being wiped out by another extended economic downturn it makes sense to be conservative if you have worries about the stability of the markets. But we are at a point where it would take something pretty major indeed to wipe us out, so I am comfortable keeping our money in the market, where it has done good things for us, as long as we have that significant cash reserve to fall back on. YMMV.
lhamo
I'm aiming for three year's of living expenses as well (although I'm about 50/50 money funds and short term bonds).
I find that this strategy requires very little effort on my part. I just rebalance once a year, and do my best to ignore the markets otherwise. This appeals to my innate laziness.
We had some thread drift here.Seems people were much more interested in my negative comments on the safety of retirement accounts.
Here is an article I ran across today.I don"t know anything about this site but they do echo what I was talking about.
http://www.economicpolicyjournal.com/2012/12/how-government-is-coming-after-your-ira.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+economicpolicyjournal%2FYZSb+ %28EconomicPolicyJournal.com%29
Gardenarian
12-12-12, 5:29pm
You guys are all so knowledgeable about this stuff! I might as well be reading Greek.
I'm investing in what I know: real estate. And I think it's a good time to buy. I love DIY and like the idea of having something tangible for my money.
Yossarian
12-17-12, 5:03pm
I'm aiming for three year's of living expenses as well (although I'm about 50/50 money funds and short term bonds).
I find that this strategy requires very little effort on my part. I just rebalance once a year, and do my best to ignore the markets otherwise. This appeals to my innate laziness.
I'm right there with you except I'm too lazy to rebalance, I just direct new savings to fixed income on the theory it should increase as a % of holdings as I get older and the more you have the less you need to gamble on equities. It's rough justice, but percentages seem to be working out.
http://www.foxbusiness.com/personal-finance/2013/02/26/401k-pass-or-fail/
Even Fox is getting on the 401k reform bandwagon.I heard somewhere that there is around 19 trillion dollars in retirement accounts.The US govt. is broke. They would love to get their hands on this money and hand you a Treasury IOU in exchange. In fairness,the article doesn't mention T-Bills but annuities instead.
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