Folks please take a look at your investments NOW

[TwixVoy]

I will not tell anyone what financial moves to make in this thread or tell you the sky is falling.

But I just want to suggest to any DUers with a 401K or other investments to take a moment SOON to read some articles on what has been going on with the dollar and do a little bit of economic research beyond reading the headlines you see in the MSM telling you all is well.

A lot of people were caught off guard at the end of 2007/early 2008. I was here posting back then that the internal retail sales numbers nation wide had fallen off a cliff at Target (which I didn't name back then due to fear of retaliation from Target) and that something major was coming down the pipe. Unfortunately I no longer work at Target and can't see those numbers my self, but from former co-workers I have spoken to recently they have taken another turn for the worse recently. That is not a good sign at all. A lot of this "recovery" talk is based on the belief we will see a consumer driven recovery. Come the end of fourth quarter if that doesn't materialize it will be another disaster.

Also PLEASE read some economic articles at sites *dedicated* to the economy/markets instead of what you get from CNN et al. I love how we have already just lost another half a million jobs and the MSM is already trying to tell you it's not that bad. There is a lot more to pay attention to than consumer sales and job losses coming down the pipe.

Read what is out there and make your moves accordingly, but please do your research soon.

Also if you have a job and have debt please consider using this time to pay that debt as much as possible.

[SpiralHawk]

1. Amen

As if I had any investments...but still I think this be good advice...

[hobbit709]

2. I have an 01K

[WCGreen]

4. Shit, all we have left is the letter k....

[Liberal_in_LA]

64. lol n/t

[northernlights]

132. I'm trying to sell my K

I'd pawn it, but the local pawn shop closed and has a 4-sale sign on it. :(

[JustABozoOnThisBus]

91. Yeah, my so-called investments are ***k'd too.

But, hey, at least I'll have my health (assuming we get some sort of health bill that actually helps)

:hi:

[roguevalley]

135. hobbit and wc, I hug you both. I pulled mine and put it in cd's.

and by the way, you two gave me the only laugh I had all day. HUGS!!!!!

[Joanne98]

3. Good advice. I don't own any stocks but if I did I would pay attention NOW!

BTW. There are a lot of good bear etf's if people want to check into that too.

[NOW tense]

5. I cashed in my retirement to pay the mortgage.

I don't have any money in the market anymore.

[mikelgb]

6. Here are all my investments:

[GreenPartyVoter]

131. Same here

[eleny]

7. I remember your postings about retail

It sounded like you were describing Target because of my experience there. Target was always such a convenient store for me being located so close to our house. A few minutes drive. Then they opened a couple of the big stores just a bit farther away but still convenient. I loved the stores being so well stocked and clean.

Then, the stocked shelves started looking bare. So I started looking elsewhere first before going to Target. Often I'd look online for casual clothes or in small specialty stores because Target just didn't offer have much in stock. I couldn't even find a tee shirt with pockets for hubby so we order from LL Bean now even though my first choice would be to shop locally.

[TwixVoy]

10. The instocks at Target were a big issue... I posted about the crazy

replenishment situation we were seeing at retail here too.

The thing is we could NOT get the product even in to the country. I was going so far as emailing people at HQ telling them the amount of out of stocks was nuts. The response I got back from them was basically "Yea it's not coming in to the country at all what do you want us to do about it?".

Take a look at the baltic dry index. It has dropped yet again recently, so I would expect retailers are going to have more replenishment issues.

What would amaze people who don't work retail is just how much work we had to do over the last year to make things LOOK full. All the stores even got instructions from HQ on tips to make the shelves look full to people even when half the product that was supposed to be on the aisle was out of stock. Target and others don't want people to see that. It is a huge focus.

[Frustratedlady]

17. I did see that at Target a couple weeks ago.

My granddaughter had signed up for two pages of items for her baby shower, but we searched for 2 hours to find any of the items that weren't marked "on-line" or not in stock. We would have had to order the large items, like a high chair, and finally decided they weren't stocking anything big so they didn't have to take up the space and/or investment. We would have had to pay shipping, in addition to the price.

Their gift registration process is a joke and I will never buy from one of those lists again. Sorry.

[lildreamer316]

121. Aha! So *that's* what happened to Garden Ridge!

They've stopped carrying a lot of stuff and what they do carry looks like it was made for a .99 cent store. Not that they had really high-quality stuff before, but this is just...bad.

[Statistical]

15. Yeah compared to 5 years ago Target has gone downhill.

Stores tend to be dingy and needing updating. Bare shelves or sometimes stocked but very little selection.

I wanted to get a good coffee grinder for her birthday because I had acquired some Blue Mountain whole coffee beans. I went to target first. They had 2 coffee grinders. One model was $19.99 and looked like it was worth about $3.99. The other one was nice but they only had one box and it clearly had been returned (no mark down). So I went to Wally world. 5 different grinders, all in stock. Grabbed the one I liked at Target it was a couple bucks cheaper but I would have gladly paid a few bucks more at Target.

Take that experience times a million consumers and pretty soon it starts affecting your top line growth (gross revenue). Then to stay afloat you need to start cutting costs (less inventory, less cashiers, less lighting).

Target has been stagnant for a couple years now. They were able to keep profits up by opening NEW stores but the more important metric (for healthy retail) same stores has been in a decline.

[goclark]

84. The target in my area is full all the time and I've been able to

find products in a wide range of items. :shrug:

There was a time about 4 months ago when the store was close to empty.
For the last few months the parking lot is full, lines are long and people are coming out with bags full of things.

As mentioned in other posts, we have another huge target almost completed that is less than a mile from the other. People are wondering how they can both make it. :shrug:

[renate]

104. me too

I went on a Saturday recently and the place was PACKED.

And that's in Oregon, where unemployment is something like second or third worst in the country.

[zonkers]

70. Home Depot shelves are a flatout disaster. Limited stock. I could not find a decent garden hose.

I will never go back.

[eleny]

126. Home Depot's web site is a disaster, too

Last night we were looking to see what they charge for Behr's waterproofing for cedar fencing. The search engine was not intuitive in the least. Maybe they want you to go directly to the store.

This isn't the only time I had trouble finding things on their site. The search engine is frustrating to use.

[ThomWV]

8. The sky is not falling

If in fact you had any good knowledge of economic principle you'd know that if anything now is the perfect time to buy into our economy and to amass as much debt as you can stand. Inflation is on the horizon and in preinflationary times its desirable to load up debt so as to make later repayment with cheaper currency. That presumes you expect inflation and with the hundreds of billion phantom dollars that are being pumped into the economy, well, it doesn't take a Ralph Maynard to see where that one is going to lead.

[TwixVoy]

11. Good luck to you on that

Go ahead and amass your debt. We'll see how that works out. I am bookmarking your post to ask you about come 1st quarter 2010.....

[Statistical]

18. Inflation hurts lenders and helps borrowers.

That is economics 101.

In high inflation environment having debt is far better than holding cash which buys less and less each year.

[TwixVoy]

34. No kidding

but that doesn't mean you should go out and intentionally load up on debt.

[AllentownJake]

41. If your buying hard assets

and you can get a good interest rate why not

:shrug:

[TwixVoy]

42. Hey why not?

If you feel that way go ahead and apply for as much credit as you can and max your self out. We'll see how that works for you.

[question everything]

116. Yeah, in the past year I have been sending 401K contribution

to money market funds, also rearranged the portfolio. Now these funds pay close to 0% so I moved to bond funds..

[strategery blunder]

16. Might explain why banks are jacking up interest rates to 30+%.

We can't have the consumer BENEFITING from inflation now, you hear?

(Well that, and getting their hikes done before the new regulations take effect next year...)

I paid my cc debt off. If my interest rate was still reasonable I might have considered leaving it, but it's hard to justify paying 30% interest on some vague hope inflation might turn out to be 31%.

(Actually my interest rate "only" went up to 24.99%! It wasn't a penalty rate, it was just the bank being an ass and slandering my credit in the hike notice rather than admitting the decision was based upon its own greed.)

[Statistical]

25. Well 31% is too high however...

for example someone with a mortgage at 5% if we have inflation of 4% it is in "real terms" like having an interest rate of 1%.

Paying down your mortgage early is like getting a 1% ROI, buying something that rises in an inflation environment (like Gold or Oil) would be a better ROI.

[AllentownJake]

33. stepping up collection practices too

Miss one payment even if you haven't in 3 years and see how many phone calls you will get today.

[strategery blunder]

106. LOL

If they did that to me, they would spend more on postage for invoices and phone bills than the actual amount of the debt--my cc debt is $14.86 :)

[Statistical]

111. Well plus up to $39.99 for late payment fee.

[strategery blunder]

118. If they sent that to collections, I would just wait out the statute of limitations.

Cut my phone service and switch cell providers/number while I'm at it.

My cell contract is long expired so I can nuke my phone number at the drop of a hat if I ever feel the need.

[AllentownJake]

22. correct on the debt front.

[girl gone mad]

78. We don't have inflation..

for the simple reason that more money has been lost over the last two years than the Fed can replace.

[northernlights]

133. inflation won't happen until the banks actually lend the money

instead of hoarding it to cover their losses and using it to buy up other banks.

The trillions haven't been pumped into "the economy." They've been pumped into the banks.

Now, if the trillions ever find their way into the economy -- and consumer's hands -- then we can start to worry about inflation. But that's a at least a few years off at this point.

[Frustratedlady]

9. I noticed that clothes were the hot item at garage sales this summer.

Particularly, children's clothes. The women were also hitting the "office" outfits and heels harder than usual.

My daughter had 5 tables full of size 2-5 children's clothes and shoes. She ended up with half a tableful when the 1 1/2 day sale was over.

Those are sales that didn't go to the Target-type stores.

[slackmaster]

12. My gun collection is doing just fine

Everything else, mediocre.

[Swede]

13. Some of my investments have soared 30% since February.

I like that.

[TwixVoy]

23. Good for you

As for me I have taken ALL equity positions I have held and moved them over to short term AAA rated short term foreign bonds in the last month.

I have liquidated my pension plan AND 401k from my former employer and rolled them over to a traditional IRA in said bonds as well.

I have also taken several short positions in the last week on certain US stocks.

I also have $15,000 worth of gold sitting in a bag in my closet as well just in case of a worst case situation and the dollar goes to hell.

[Swede]

27. Very conservative move (fiscally speaking).

As Warren Buffett says,be greedy when other are fearful,and fearful when others are greedy.

[quiller4]

117. My CREF portfolio has rebounded more than 45% since February.

That makes me very happy.

[tinkerbell41]

14. Thank god someone is paying attention

I have been pleading with family members currently in the market to get out. I saved myself before the big loss summer of 2008. No one would listen to me, they all need to turn off the frickin TV and start thinking for themselves. Not really hard to see, everyone seems to be home all day, stores are empty, except for Home Depot and Grocery. WAKE UP. Karl Denninger, although I don't agree with his political leanings, a Repub, voted Obama, he has never been wrong on the markets, financial things. If it wasn't for him I would have lost 40% of my retirement annuity. Check him out!

[TwilightGardener]

24. I found out that I CAN'T get out. My husband has a federal-employee 401k

(Thrift Savings Plan), and he can't withdraw his funds until he leaves the service--UNLESS he can prove some sort of extreme, dire hardship with documentation, etc. We're helpless, watching our money sit outside of our control and at the mercy of the market, even though we desperately need it to buy a house soon. And it's all ours, every penny, no matching funds--but we aren't entitled to our own money. Biggest fucking scam ever. Never again--your money's better off under a mattress. At least you can access it when you need to.

[recoveringrepublican]

51. My husband has that this is what we did

We freaked out. We couldn't take any out to just keep, but we could take out LOANS and then pay ourselves back at 3%. We were at least able to pay down debt and our mortgage, so if the TSP gets shot we have some free and clear assets.

[TwilightGardener]

63. Yep, we took out a loan a few years ago to pay off debt related

to home improvements--we just paid it off, and we're going to borrow again because we're moving and need to buy a house at our new base. In better economic times, we'd just assume that we'd make a tidy little profit on our current house, and use that to buy our next house, but now we're not sure if we'll break even when we sell. We really, really don't want to move right now, and my husband tried everything he could to allow us to stay put in our house until his upcoming retirement, but that is the nature of the military. They don't give a shit what your situation is--they just look at your records and say, "Time for a new assignment."

[eleny]

67. Can he roll over some of that 401k into the federal pension plan to "buy time"?

[TwilightGardener]

73. Hmm, I don't know. He won't be eligible for his military pension

for another 2 1/2 years or so, and I don't know that it's the same as the federal (civil servant) pension plan--and it's a theoretical pension until he actually retires at 20 years. He has been looking at redistributing the assets within the fund, but he's not sure where to redistribute them to, just yet--he's been reading financial advice and trying to get a handle on it. Our fund performance is actually improving, and we've been buying lots of shares since they were so cheap lately, so if the market rebounds for the long term, we'll kick ourselves for pulling out our money. On the other hand, we've been kicking ourselves because we lost 15-20% over the last year, and figure we would have been better off in putting that money into a simple savings account. It's all a big crap shoot, isn't it?

[eleny]

112. Yeah, I wouldn't expect that buying time would change his years of service

My hubby and I both were state employees. We each bought time in our retirement association. But we couldn't formally retire and receive our pensions until we were the required age.

I hope you can find a place to park your funds safely.

[TwilightGardener]

119. Thanks. I tell ya, state and federal jobs aren't the best paying or the sexiest, but

they're about the only jobs that have pensions anymore--and that's pure peace of mind, as far as I'm concerned. At least we'll have that, no matter what the investments are doing.

[eleny]

125. You're right about that

Job security wasn't a given, either, like some believe. But in our case, our pension plan is protected within our state constitution. Adjustments are made to preserve viability. But the state is the bottom line and will pay our pension no matter what. Unless the state goes completely bust, that is. In that case I don't think it matters where we live. The whole country would be in the same boat by then.

[TwixVoy]

95. Remember the reason they don't let you easily take it out

is because it is supposed to be used for retirement only, and you get tax benefits to that effect.

[TwilightGardener]

98. The reason they don't let you take it out is to protect the fund from

everyone taking it out. The whole "we're just trying to save you from yourself" thing is bullshit. And they're not giving you a gift--if you take it out before 59 1/2, you fork over the taxes. The tax thing is an incentive to leave your money there. The 10% penalty is an incentive to leave your money there. That's fine. But if I STILL want to take it out, I should be allowed to. I feel it should be illegal to keep my money hostage.

[TwixVoy]

99. You have an option of roth retirement accounts

and you will not pay taxes of ANY of the money your investments earns ever. You only pay regular income taxes the year you initially put the money in.

[Statistical]

102. The don't put the money in to begin with, it isn't like the rules suddenly changed on you.

401K is a compromise

You agree to keep the money in there based on terms govt sets.
In return you get tax deferred growth and (with most employers) free money in the form of a match.


99% of the time they are protecting someone from themselves. Cashing out a 401K to pay a debt is a lifetime penalty for a short term problem.
Any financial planner will tell you that generally speaking to pay an unsecured debt with tax differed judgment proof (you can't lose your 401K/IRA in bankruptcy) is a very bad mistake.

[TwilightGardener]

107. Well, everyone's situation is different--"99 %" doesn't exist except in your mind.

My husband doesn't get matching funds. Every penny that's there is ours--well, what pennies are left, anyway. And I would like the remainder of my pennies to build or buy a house. I feel that's a better investment for us, both right now and for the future, even despite the hit real estate has taken. I want a paid-off mortgage someday before I'm elderly, even more than I want a 401k that might not be so fat by the time we retire for good. Look at all the folks who are retiring now, dependent on devalued 401k's. You can't live in one, that's for sure. And it galls me that I am not allowed to take out MY money when I choose, even when agreeing to the punitive policies to do so--not sure how they can literally hold your money hostage. But again, it's to protect the fund, that I cannot opt out. It's not to protect me. That's classic "piss on your leg and tell you it's raining" by the government and the people who run Wall Street.

[Statistical]

110. If you don't get a matching contribution.... why not stop using it?

Open an IRA instead and you can contribute $5000 per year.
You can even go Roth IRA (no tax deduction but no taxes when you withdraw).

Consult with a financial planner but it sounds like a 401K is worthless for your situation.

[TwilightGardener]

115. You are perhaps right--anyway, if all goes as planned, we will have my husband's pension

while he's working at his post-military career for at least another 15 or 20 years (he'll only be 42 at retirement). I plan for us to use that time and money to both pay off our next mortgage and to squirrel away more "backup" retirement funds--maybe in a Roth, we hadn't looked into that--especially since I don't have a retirement fund of my own to contribute (I'm not working right now). But watching my elderly parents still working, still struggling to pay their mortgage, I've decided that owning your own home is the most secure position you can be in at retirement, because any retirement funds you've scraped together that have survived a possible bad stock market are going to deplete a lot faster when you're still making mortgage payments with them. So toward that goal, we'd like to yank my husband's 401k money and plow it into my permanent "retirement" house as downpayment (since we're not sure we'll get much for selling our current house), but we can't. Unless we wait almost three years, when my husband leaves the service and can withdraw it, to buy or build. Which would mean almost three years of throwing away money on rent instead of building equity, plus not having a good home for my kids or pets (sorry, but apartments totally suck--good for singles, no place for a family). So that's why I'm pissed that I can't liquidate it. Edit to add--we did recently stop our monthly contributions on the 401k--we need the money now more than later, lol.

[Statistical]

122. As long as one person is working....

the IRS allows you to have a Roth in your name also.

There is no such thing a a joint Roth but your "family" (technically in the govts eyes your husband) can contribute:
up to $5K to his Roth
up to $5K to your Roth
----------------
up to $10K total per year (changes based on inflation).

The sad flip side of this is yet another example where same sex couples are disadvantaged.

Yeah it does suck the limitations they put on TSP. Generally 401K/403b/TSP are only worth it for:
a) the matching contribution
b) you are so well off that you already max your IRA and want to save EVEN MORE tax deferred.

If neither of those apply an IRA (either traditional or Roth) is far more flexible.

For example you can draw $10K from it to buy a home (first home) without the 10% penalty.

[TwilightGardener]

124. Good info, thanks.

[SoCalDem]

128. Even having a paid off mortgage is not the "protection" it once was

If one of the two elders needs "extreme" medical care, late in life, that paid off house becomes a piggy bank to be broken into by the facility. Older people who have to go into nursing homes effectively sign over the fruits of their life's work ...paid off homes included... to cover their care. If they are alone in life, it's no biggie, but if they have a spouse who has to have a place to live, that could present a real problem for them once the asset value has been siphoned off due to costs, and then there is no more "paid-off" house.

Thom Hartmann said on one of his recent shows, that what we are seeing is the greatest asset shift of all time. As boomers age, their accrued wealth is going to be diverted, not to their children & grandchildren, but the the health care industry. The most money spent on health care is during the last few months one is alive....so kiss your assets goodbye..

[TwilightGardener]

129. Yes, that is depressing but true. I watched it happen in my own family, to

both sets of grandparents--the nursing home gets it all in the end. I guess it's the way we get old and die in America these last few generations--living longer, but not necessarily with health or independence. Those extra years come with a big price.

[SoCalDem]

130. and it's an end to the generational wealth transfer

that we have become accustomed to. Only the rich get to pass on their wealth to their heirs..middles & poor folks get to hand it off to health care corporations

[tinkerbell41]

127. Actually, I didn't get it in my hot little hands.

I moved it to a more stable option. Only earns 1-5% but I didn't lose it. I am sorry and yes I understand. Some Advisors whispered in my Union's ear and now we have this fund. The concept is great, a pension and extra cushion annuity, problem is we are talking about Tradesmen/Women myself included. Really, most of the people I work with have no clue about the Markets nor do they have the time to learn it. It's bullshit, coming to the realization just a way to get hands on everyone's money. Thank God they didn't privatize Social Security.
I cannot touch mine either until I have left the trade for 2yrs.

[AllentownJake]

19. Why pay the debt?

If the dollar is about to go into hyperinflation, why pay for debt at its current dollar value. The smarter move would be to buy gold and pay your debt off at pennies on the dollar.

[Statistical]

29. +1. Stupid to pay down debt if you think inflaiton is coming.

IF (and it is a big IF) the economy suffers massive inflation in the future the stupidiest thing you could possibly do is pay off debt today.
Wages rise in an inflaiton period but costs go up so you don't get any richer in terms of buying power.
However debt is fixed so you will have more future dollars to pay down a fixed debt.

To hedge your cash you put it into something that goes up with inflation. Gold works but it has been runup by people speculating on future inflation.
There are other less known commodities that move lock step with inflation which haven't already been pumped.
IF oil comes down to $50 it would be a nice harbor against inflation.

[TwixVoy]

36. Not stupid because anything can happen

Just because you and I may THINK inflation is coming doesn't make it so. Paying off debt covers your bases totally regardless of what happens. NOT paying it off only leaves you 50% covered.

[Statistical]

46. Well no paying down debt now causes you to lose purchasing power in the future.

If inflation rises substantially.

You are using high value dollars now to pay down a fixed debt when you will have more low value dollars in the future to pay down the same debt.

Rather than pay down debt you should buy commodities that rise with inflation.
Paying down debt is the absolute worst possible thing you can do with money IF you premise is high inflation in the future.

[TexasObserver]

60. That's just wrong advice.

This catechism you have about paying off debt is ridiculous. You acknowledge we're likely to experience some debt service driven inflation, but fail to see how that makes paying back debt in the future smarter than paying it back now. You fail to acknowledge that in times of economic uncertainty KEEPING CASH is smart, because one never knows for sure what will happen. You keep telling people to use cash to pay off debt, and that is the kind of nonsense that will leave them out of cash in a year if trouble surfaces.

If they have cheap debt, they should not pay it off. Let inflation make it work for them.

It's irresponsible to try to spook unsophisticated investors into buying, selling, or doing anything with their port folio, because their needs are each unique.

[TwixVoy]

72. If you are so deep in debt

that you can't easily pay it off in a reasonable period of time you likely HAVE NO investments so the point is moot.

If the people trying to justify staying in debt is a good idea are in over their head in debt at the moment and are trying to gamble hyperinflation will come to save them then yes, using all cash to pay it off would be potentially a bad move. I am talking about people with reasonable debt levels, not the ones who are out of control.

[Statistical]

77. Who said anything about out of control.

I have a $200K mortgage and $30K in student loans. I could pay those off tomorrow by selling investments.

That would be the STUPIDEST thing ever if I (as you do) anticipate high inflation.

Instead if I run into financial problem I can convert some of my assets into cash periodically and use that cash to maintain payments on the debt (thus avoid bankruptcy or foreclosure).

Your premise is high inflation is coming (that might be right or wrong) and to prepare people should pay down debts (that is 100% wrong).

Paying down debts to prepare for high inflation is like running into an open field to prepare for a tornado.

[TwixVoy]

83. Again you are making the assumption we will have

massive hyperinflation in short order. If we don't such a person would be screwed.

[Statistical]

92. No I'm not.

If we don't have inflation and the economy recovers I would much rather be in the stock market earning ~10% then having paid down debt with a 4% ROI.
IF we do have inflation then you are just double screwed.

If I lose my job I would rather have an extra $200K in investments/assets that I can sell slowly to generate income and use that income to service the debt ($15K per year on $200K loan) and pay my other expenses than have "no debt" yet no income and no assets to generate cashflow.

So there is no scenario where paying down low interest fixed income debt is "good" idea, it is just under inflation (even modest inflation 5%-7%) you get totally destroyed.
So it is like having 3 outcomes: WORSE OFF, REALLY WORSE OFF, TOTALLY DESTROYED. Just because totally destroyed is only one of the 3 outcomes doesn't make it a good idea.

[TwixVoy]

96. Your posts logic

reminds me of a person I used to know who took out a $10,000 balance transfer from a credit card at a 9.99% rate, put it in a 4% CD, and thought he was earning money.

[Statistical]

100. Maybe you were reading right to left because I said the exact opposite.

You "logic" is exactly to sell assets appreciating at ~10% to pay off debt yielding 4%. You call it "saving money" but I call it lose 6% on ROI.

[TexasObserver]

86. Yes. Using cash to pay off debt right now is often not sound.

I do believe we are headed for some inflation driven by deficit spending. Why would I pay off debt in the face of that? And why exhaust cash reserves to pay down debt? Right now, debt can be an asset. It's nailed down in time, but the value of the asset can inflate.

[ipfilter]

80. Gold

is a crowded trade right now.

[TwixVoy]

35. Because anything can happen

I could be completely wrong about the dollar. It is SAFER to pay off debt and be covered in BOTH situations instead of not paying it off and take a 50% chance of being screwed.

And if you read my post above I have bought gold already just in case.

[AllentownJake]

39. If what you say is going to happen

Than paying off secured debt would be the smartest option and allowing unsecured debt for minimum payments.

:shrug:

[TwixVoy]

40. Where did I say FOR SURE anything was going to happen?

Just because I THINK it may happen doesn't make it so. It is better to cover your self in both situations by paying off debt if able, not to gamble we are looking at inflation. (which, BTW, I do think we are looking at... I see the dollar losing significant value)

[AllentownJake]

43. Inflation will happen

It is a given. You don't create money out of thin air and not have it eventually start biting you in the ass.

[TwixVoy]

45. The better choice would be

to pay off debt and use your future funds to invest properly for an inflation situation. (which could be as simple as buying gold) Taking on loads of debt under the belief hyperinflation will be here soon is not a proper investment method.

[AllentownJake]

47. Actually taking on some debt on secured assets is an effective hedge

We aren't debating ethics or morals here.

[TwixVoy]

49. I'm not saying it isn't

only that it is one of the less responsible things to do.

[Statistical]

53. Setting yourself up to be destroyed in high inflation enviroment buy paing down the one thing

that is fixed is the least responsible thing to do.

Guarantee you right now if Walmart, IBM, Microsoft, Google can sell bonds at low interest rate they will right now if they think high inflation is coming.

Inflation destroys purchasing power. The one bright spot to high inflation is the ability to pay down debt easier.
If you are debt free going into high inflation period you will come out of it substantially worse off.

[TwixVoy]

57. Not if you make proper investments for an inflation situation

such as buying gold. Unless you are going in to debt to buy gold/silver/platinum what hard asset are you going in to debt over that you think will give you a better return than metal?

[Statistical]

61. If you are using cash to pay down debt where are you getting the $$$ to buy gold.

Instead of paying down the DEBT (which is a fixed interest asset and won't change in "cost" = "price").

Use the cash to purchase hedges in commodities.

I never said buying gold is bad although gold has had a huge run up in anticipation of inflation so buying now it may underperform the rate of inflation.

I said paying down debt is the worst thing you can do. You are using valuable dollars which could be used to buy a hedge and instead paying down THE ONLY THING which won't go up in cost/price durring high inflation period.

[TwixVoy]

68. Like I said it is a gamble

WHAT IF - WHAT IF - we don't have hyperinflation?

What if we are looking at mild inflation and mass job losses? What then to people who didn't pay off debt?

The SAFEST move to cover ALL bases is to pay off debt and then make investments accordingly along with your appropriate hedges.

[Statistical]

75. No it isn't.

Say someone has $200K in debt but the annual servicing of that debt is $15,000.

Now if someone is unemployed for 2 years then to avoid going into default they don't need $200K they just need $30K.

By using cash to pay down the debt they are not trapped.

If inflation rises they are trapped because they have no debt to pay down (only way to stay ahead of inflation in high inflation environment).

If doesn't rise but they lose their job sure the $200K debt is paid off however what about other bills and debts? Cash gives them the ability to continue to service debts and pay expenses.
Even worse if someone with say $100K they can liquidate and $200K in debt. If they followed your advise they would cut their debt to $100K however that wouldn't keep them from losing it if they were unemployed. Instead if they had kept the $100K in assets and slowly liquidated them while unemployed that would produce cashflow and allow them to pay debt & expenses without defaulting.

If inflation doesn't happen and they aren't unemployed and we have an economic expansion they have liquidated their assets to pay down debt and while they won't lose anything they will miss that economic expansion.

Paying down debt low interest fixed income debt (like a home) is a trap.
Instead continue to service the debt. Don't sell assets/investments simply hedge them by buying investments that rise in high inflation environment. At worst case scenario over a long time horizon (say 5 to 10 years) you should break even. That would allow you to use that to continue to service the debt in the event of unemployment, medical crisis, or some other issue that disrupts normal cashflow.

You run the risk of destroying someone financially by making claims not supported by ANY economic theory. I doubt you want to live with that.

[TwixVoy]

79. As I say above

If you are so deep in debt that you can't easily pay it off in a reasonable period of time you likely HAVE NO investments so the point is moot.

If the people trying to justify staying in debt is a good idea are in over their head in debt at the moment and are trying to gamble hyperinflation will come to save them then yes, using all cash to pay it off would be potentially a bad move. I am talking about people with reasonable debt levels, not the ones who are out of control.

Your extreme 200K unsecured debt person paying 15K a year on it is likely already financially destroyed. Good luck to him on the gamble hyperinflation will come along to save him.

[Statistical]

87. So you can pay off your mortgage is less than a year just based on your income?

$15K in payments per year ($1250 per month) on a $200K 30yr mortgage is not exactly extreme.
Nor would I consider that person over their head, trying to gamble on hyperinflation, or justifying staying in debt.

Now if someone has high interest credit card debt of course they should pay it off.
That has nothing to do with inflation though. They should pay it off because it is stupid to contribute to investments with ~10% return per year while racking up debt at 24.99%.

Many extremely rich investors pay the "minimum" on mortgages and other fixed low interest debt because simply put the money is worth more invested that the return from paying the debt off earlier.

[TwixVoy]

89. You know full well

I was talking about reasonable levels of UNSECURED debt.

Not people with crazy high levels of unsecured debt or mortgages.

[Statistical]

93. Exactly reasonable debt.

Still better to keep cash (which gives you options) or better yet diversified set of assets which can be sold for cash then to pay down debt.

Sorry that is the truth.

Microsoft generates huge amounts of free cashflow each year, they also have substantial cash reserves. Even still they don't pay off their long term debt and they certainly won't pay down debt going a possible period of high inflation.

[Statistical]

50. No that would be the worst thing you coud do.

Inflation inflates EVERYTHING.

You paid off the one and only thing that doesn't go up in an inflation environment = fixed interest debt.
The only thing which won't be more in the future you paid off now.

Then you are going to try and invest in a high inflation environment? Really? Gold will be inflating at the same rate your wages are.
There is no free lunch.

However if you owned gold now, sold into the inflation, used your higher wages and cashflow from slowly selling off gold to pay down your debt you could come out ahead.

The only place you can have a high return with low risk in a high inflation environment is paying off fixed interest debt. That is econ 101.

[TwixVoy]

54. I'm just saying it is a gamble

I am not disputing the fact inflation would cheapen your debt.

I am simply saying on the off chance we did NOT see hyperinflation you would be screwed. And yes, for this to pay off you would need pretty hefty inflation in short order. If you gamble wrong it would be an ugly situation.

The SAFER move would be to pay off debt and buy gold, for instance.

[Statistical]

65. Or not pay off any debt. and hold a diversified portfolio of assets

Including commodities, equities (protected by covered calls), cash, inflation adjusted treasuries.

I never said buying commodities was bad only that paying down debt into a high inflation enviroment is a recipe to destroy wealth.
It isn't a risky, it is guaranteed.

The only time to pay off debt is in a deflationary environment.

Then you want low debt and be holding other peoples (or companies, or govts) debt.

[northernlights]

134. I'm not convinced inflation is coming any time soon

1. How many trillions of dollars were lost in the last couple years? How many more trillions may be lost with commercial r.e. meltdown and consumer credit meltdown? Versus how many trillions were created out of thin air? I think MadGirl is righ -- more $$ was lost than created.

2. The banks are not lending; they are hoarding cash and/or using it to buy up assets on the cheap. Until the money finds its way to businesses and to consumers, there will not be inflation. That could be a long time coming.


But please, you are welcome to explain where this thinking is wrong.

[girl gone mad]

71. I was about to ask the same question.

Twix is presenting conflicting advice.

I actually think we will continue to see deflation for the near future, but manageable debt is okay.

[Statistical]

76. Ironically deflation is one period when you DO want to reduce debt load and...

become the lender (buy bonds, treasuries, etc).

However I think your right any deflation will be too short lived to capitalize on. As long as the fed keeps interest rates below 0 in real terms it will be difficult for long term deflation to take hold.

[doc03]

20. I have recovered a good part of what I lost in the

401K the last 5 months. There are a lot of people that sat on the sidelines and missed that opportunity. I am not saying you are wrong but if you listen to the stock gurus on CNBC there are some that are always bears no matter what and others are always bulls. Here is an example, have you ever listened to Bob Brinker on Money Talk? I remember when Bill Clinton was elected Bob Brinker ranted continually about how he didn't have a clue about economics. Brinker predicted that if Clinton got his tax increase on the rich it would cause a depression. I sat out a good part of the Clinton years waiting for that depression and lost out on one of the greatest markets ever. To be fair Brinker also said to get out of the market in 2000 predicting the NASDAQ IPO meltdown, that time I didn't listen and got killed. Even a broken clock is right twice a day.

[soleft]

21. My Company won't let me touch my 401K

I know you're not suppose to do this, but I was considering cashing it out to pay off my debt, but I can't withdraw unless it's a hardship withdrawal and I don't qualify for that.

The only thing I can do is redistribute the funds - where should I put them?

[TwilightGardener]

28. Yup, same here--see my post #24. Sucks, doesn't it? The 401k

rules are designed to protect...the 401k fund. That whole "We penalize you and you can't access it for your own good" is absolute bullshit.

edit to add: You could take out a loan on it. I did that before, and I'll do it again soon--it's the only way I can get my money out of it.

[TwixVoy]

38. Remember you are paying double taxes taking out a loan

[TwilightGardener]

44. Not sure that matters to someone who is deep in debt, paying big interest.

I figure if you're eyeing your 401k to bail yourself out, you're not in a position to care about losing the tax advantage.

[TwixVoy]

48. That is a good point

if it was that or drowning in debt it may be a viable solution as long as you aren't going to add more debt over time.

Remember retirement funds can't be touched by creditors. If you think you are going to lose everything due to debt it would be better to consider bankruptcy instead of pulling out of retirement funds only to face bankruptcy later on. In bankruptcy your retirement funds can't be touched, nor can they be touched by creditors outside of bankruptcy either.

[TwilightGardener]

55. That's a good point. I guess it just depends on the magnitude and nature

of the debt and interest--and whether the stigma/aftereffects of bankruptcy is better or worse than putting a big dent in your retirement.

[closeupready]

56. In my opinion, that last bit of advice is as good as gold.

This is one reason among many that I stuff as much money as possible in my 401(k), because you just can never predict what your future holds, but you do know that nobody can touch your 401(k).

[Statistical]

69. +1. Tapping 401K via a loan is 99% of the time a bad idea.

The only time it would make sense is IF you are financially stable and have a moderate amount of high interest debt you can't pay off but are in no risk of bankruptcy, foreclosure, unemployment etc.

In that one limited instance it would make sense to erase high interest debt and pay yourself back slowly. However taking money out of a protected asset (like 401K, IRA, or home) to pay unprotected assets when you risk losing everything is very very very dangerous.

Someone should seriously consult with a bankruptcy attorney and/or financial adviser first.

[truebrit71]

85. You shouldn't be paying ANY taxes on a 401(k) loan...

..unless you fail to pay it back at which point it becomes a distribution and THEN gets taxed...

[Statistical]

88. All 401K repayments are based on taxed income.

You are taxed on the repayment in the sense that it takes "post-tax" income to repay it.

Imagine a $1200 loan on a 401K paid over 60 payments to keep it simple no interest.
It will take 60, $20 payments to repay the loan.

However to get $20 you need to earn $25-$40 because FICA, income tax, state tax is deducted from your income before that money can be used to repay the loan.

[truebrit71]

90. That is different than ACTUALLY being taxed on the loan..

..important to point that out..

[TwixVoy]

97. You are being taxed on the loan

in the form of double income tax.

[truebrit71]

103. Which is NOT the same as the loan being taxed.

It is important to make that distinction for folks that may be considering that option..

[TwilightGardener]

109. Yes--you are not suddenly going to owe taxes on the loan amount--

unless you fail to pay it back. But you are going to use post-tax money to pay it back, so you're losing the tax advantage on that portion you borrow. Two different things.

[TwixVoy]

94. Wrong

You are actually paying DOUBLE TAXES.

Why? Because when you eventually take money out you will be paying taxes on it.

The money you are using to repay the loan HAS ALREADY BEEN TAXED. Therefore you are paying taxes on the money to pay it back, AND the money you eventually take out again.

Also if it is a Roth 401k you pay taxes the same year you put the money in rather than when you take it out, plus the taxes to repay the loan the same year. Either the regular or roth 401k results in double taxation, just at different times.

The only think you escape by doing a loan versus a withdrawal is the 10% penalty for the early withdrawal.

[truebrit71]

101. Loans are not taxed. Period.

The money you are withdrawing has not been taxed, the money you pay back is after-tax, and when you eventually take a post 59 1/2 withdrawal you are taxed as well, at a theoretical lower tax rate than when you were an earner, but the loan itself is not taxed.

[TwixVoy]

105. Lol ok but the point is the same

no there is no special 401k loan tax. But you are paying income taxes on the money you use to pay it back, and again on the money you take out when you retire.

[TwixVoy]

31. Again I don't want to tell people what to do because anything could happen

If you are in US equities right now though you may want to consider a transfer to foreign equities if your 401K has such a fund (RESEARCH them first, however).

If you have an option of short term AAA rated bonds that would be even more preferable. I hate to say US treasurys, but would probably be better short term than being in the market. Just be aware some crazy things may be coming for the dollar so I don't know what we'll see happen with those.

At this point you should not be posting much of a loss (if any) in most investments in your 401K. If for some reason you ARE though remember there is always a possibility everything will be just great and transferring will cause you a loss. Do I think that will be the case? Absolutely not, but anything can happen.

I would not recommend cashing out your 401K.

[Statistical]

59. WTF?

If your premise if that high inflation destroys US equities it would also tank the dollar.
How would having money in foreign funds be protected. Foreign funds are heavily exposed to exporting companies because that is where the growth is.
Tanking dollar makes foreign exports earn less in native currency and will tank those companies numbers and the fund.
So you gain no protection but you take on a whole bunch more risk.

Treasuries? Even worse. In high inflation environment the govt will borrow new debt at higher and higher rates. In 80s the govt had to pay 15% just to sell bonds.
So hypothetically the 30yr bond rises to 15% again what do you think happens to the face value of your 3% bonds? You are talking about a loss of 40%.
So you got two choices.
1) Sell the bond at a loss of 40%.
2) earn 3% while inflation is going up say 6% a year. You money "grows" 3% but the cost of everything goes 6%. The longer you stay the further behind you get.

[TwixVoy]

66. READ what I said

The poster was complaining that her 401K had very limited investment choices and I was talking SHORT TERM. Short term (as in the next few months) I am expecting a market down turn, not hyperinfaltion.

I told her the order of investment should be Short term bonds -> treasurys -> foreign stocks -> US stocks. ANY of those could be options to her. Hell if it is a shitty 401k plan she could have only one option - company stock. She didn't say.

No kidding treasury funds would suck - and what did I say about that? QUOTE "I hate to say US treasurys, but would probably be better short term than being in the market."

So in other words if that is her only freaking choice than say, company stock, I would take treasurys. But like I said in the post "I hate to say it" and "SHORT term".

[doc03]

37. Put them in a Money Market or Treasury Fund

and you will be sure and loose money. Myself I don't try and play the market anymore I follow the asset allocation recommended for my age and risk tolerance. Have you seen the experiments they did with the chimps or just average people, they did just as well or better on their stock picks as the average market timer over time.

[Junkdrawer]

26. *fingers in ears* La La La.... Obama has saved the economy...La La La....

Get with the program.

[SammyWinstonJack]

30. .

:evilgrin:

[Orwellian_Ghost]

32. What investments?

Wall St. is a criminal syndicate. My allegiance is with people not big business.

[closeupready]

52. I remember your thread from 2008, actually, about falling retail sales.

I would believe you before any of the stuffed shirts on CNBC.

[TexasObserver]

58. Why not link and discuss relevant articles, instead of doing this?

Your OP reads like those emails old white people send each other, always portending doom about something. It suggests that dark forces are really at work behind the scenes, and that we're about to fall off the edge of the economic world.

Instead of discussing specifics, you talk about the gloom and doom we can hear on any number of right wing talk shows, bemoaning the Obama recovery.

I suggest you latch onto these articles you find instructive, start a thread about them here, and then demonstrate your ability to pick sound sources and to do discuss their content. That way we will know if your analysis has any validity.

[TwixVoy]

62. You can find articles saying anything

Hell if you go to marketwatch.com you can find articles telling you the US will collapse like Russia to we will see more prosperity than we can ever imagine.

Going around and cherry picking articles to try to influence people in one way versus the other is not productive. What you need to do is go and read both sides, You also need to look around you and ask your self what you see as a general trend. Then use your best judgment on the matter.

Me personally I think we are looking at a pretty bad situation. How bad do I think it will be? I've got a bag of gold in my closet. Does that mean I am right? No I could be totally wrong. I am simply saying to take a moment of time for your own personal well being and do some homework. Decide if you need to make some moves. Don't just listen to the MSM tell you everything is going to be great.

And I suggest you keep politics out of it. If you are even thinking of Obama (or any politician) in any way, shape, or form you are likely going to be burned. This has nothing to do with current politics. It is an economic situation that has been in the making for decades.

[subcomhd]

74. Too late,

had to cash the ol 401k to survive the (un)deremployment. Got about 2.5 months of money left before the wolf breaks down the door and devours us.

[TexasObserver]

81. Counter Advice: Sit on your cash. Sit on your debt.

Please do not listen to internet message board financial advisers who tell you things like "if you have a job and have debt please consider using this time to pay that debt as much as possible."

Please do not be moved by such urgent messages from strangers who likely lack the expertise to advise you.

Your personal investment needs depend on your needs. How old are you? Do you have sources of income? Are they reliable? Do you have large debt? Do you have high interest debt? These are but a few of the questions that might reveal what your objectives should be and how to get there. It is not "one size fits all." What works for the OP may be a terrible plan for you.

Find someone you trust, and work through them to find a plan for yourself.

[TwixVoy]

82. Which is exaclty what I tell people to do in my OP

Your post is designed to get people to think all is well and make it appear I am telling people what to do in my OP when all I advise doing is taking a look at where they stand and to do some research.

My advice is to go and do your homework and decide for your self what to do, if anything. I am simply saying to do it NOW and not be caught off guard.

I also find it amusing for you to post this when above you are giving advice your self telling people to stay in debt and even suggest to them they should do so because the value of the asset (i.e. a house) can inflate. What wonderful advice. Where has that gone wrong before? Let me think....

[renate]

108. here's an article about which chains are doing well and which aren't

http://www.nytimes.com/2009/09/04/business/04shop.html?hp

[4_TN_TITANS]

113. DU is all the financial advice I needed in 2007

to take a big chunk out of my 401k (before it lost 1/2 it's valve later) and buy a house while the first wave of forclosures was growing stale.
I owe this site and it's financial gurus much more than I could ever donate because of their market information and some well timed decisions.

[Zenlitened]

114. DO NOT pay down debt until AFTER you've built up a large rainy-day fund. - n/t

[dysfunctional press]

120. what investments...?

:shrug:

[high density]

123. The dollar???

Sorry but I live in the USA and I don't really have a choice of currency, especially in my 401k plan.