Posted: January 29th, 2009 | Author: Joe | Filed under: Investing, Retirement | Tags: 401(k), Investing, Retirement | 1 Comment »
I just read a sidebar article in January’s Money Magazine, titled Fixing the 401(k).
The article highlights 4 proposals from Washington as a ” response to the retirement savings crisis”:
Relaxed hardship-withdrawal rules
“President-elect Barack Obama has proposed temporarily dropping the 10% penalty for hardship withdrawals from an IRA or a 401(k) for amounts up to 15% of your plan or $10,000.”
Gee, sounds great. Now you can borrow from your 401k savings penalty free. Only one question – how does this increase the amount of money Americans have saved for retirement? It doesn’t. In fact, it actually worsens the problem!
Easing up on required distributions
“For those age 70½ or older, Obama has proposed temporarily suspending required minimum withdrawals from traditional IRAs and 401(k)s.”
OK, this at least removes the mandatory drawing down of retirement savings, thus eliminating unnecessary withdrawals. But it’s only for 2009. Most retirees of age 70 1/2 or older in 2008 have already had to withdraw money from their 401k accounts after they’ve lost 30% or more for the year! This is akin to putting a Band-Aid on a wound, and claiming to have fixed the problem, only to have the patient suffer from extreme blood loss! Or if you prefer the farm cliche’: the barn door is being closed but the horse has already bolted.
An automatic IRA
“Under this plan, designed by a nonpartisan group and endorsed by Obama, small businesses without 401(k)s would have to enroll workers in a payroll-deduction savings plan (you could opt out), but no matching contribution would be required.”
This appears to be the only one of these proposed “solutions” that actually addresses the problem! Since the worker has the option to opt out, I don’t have a problem with this solution.
A new national savings plan
“Proponents of a government-backed retirement savings account that would guarantee an inflation-adjusted return of 3% initially got little support. But recently one of its biggest backers was asked to testify on Capitol Hill – a sign that the plan is getting serious attention.”
This plan is not a plan to fix the 401(k). It is a plan to effectively end the 401(k) as a means of saving for retirement and transfer control of your retirement over to government agencies who have already proven incapable of handling such responsibility. It would provide the worker with a 3% return on his money, instead of the market return of a 401(k) plan. You can read more on why this plan should never see the light of day here.
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Posted: January 27th, 2009 | Author: Joe | Filed under: Real Estate | Tags: home sales, Home Selling, Real Estate | 1 Comment »
Las Vegas, of all places, is seeing an increase in home sales!
This is a good sign, because Vegas was one of the hardest hit when the bubble burst. Since last year, home sales have risen 15%.
The flip side of this coin is that the home prices have fallen 28%. Ouch! But this is all part of what has to happen.
The nature of a bubble is that prices get bid up to an unsustainable level. When the bubble pops, or deflates, prices must fall in order to reach the sustainable point.
I found this in an article on Yahoo! finance:
“The reason? Motivated sellers–those in distress or foreclosure–or banks with too many homes on the books are slashing asking prices in order to unload their properties.”
I think it’s also non-foreclosure sellers coming to terms with reality.
Back when we sold our house, my wife an I were in awe at the other houses in our neighborhood. Every house was identical, save for a window or two over the front door, it was a real cookie cutter neighborhood. Great starter homes though.
Our house was the first (and only in the last 6 months!) to sell. Our secret was that we priced our house at fair market value. There were 7 other homes for sale at the time our sold. Each one of them was asking a price that was the going rate – 6-12 months earlier! They were out of touch with the market place. I can understand that, but I never did understand what realtor in his right mind would take a client that was going to ignore reality and ultimately bring down the realtor’s sales statistics.
Eventually, even these stubborn and fanciful sellers face reality and lower their prices (usually much lower than where they could have started).
That’s what’s happening in Vegas, Phoenix and San Diego where home sales are up 10% and 90% respectively.
Eventually the prices will bottom out, sales will level off and prices will begin to rise again.
Also, remember that real estate is local, even in the post-bubble era. The part of the country where I live never saw the outrageous hyper-inflation of housing prices, and the median home price has gone up 3% over the past year.
Whether you’re a buyer or a seller, you must know your market.
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Posted: January 26th, 2009 | Author: Joe | Filed under: Economy | Tags: Economy, Opinion | No Comments »
There’s been an increased discussion of the possibility the U.S. government may nationalize the banking system. I came across this article today, that outlines some FAQ’s on the topic, but here is the money quote:
“If the government takes over a bank, management will be under even more pressure to cut costs. Expect more branch closings and poorer customer service. “Think of the bank as the DMV of the future, run by government employees who have little upward mobility,” says Mr. Kaytes.”
In short, banks will be less open to innovation and there will be less competition. All of this means worse service, lower savings rates and higher fees.
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Posted: January 22nd, 2009 | Author: Joe | Filed under: Investing | Tags: Investing, Jim Cramer, Stocks | 1 Comment »
I’ve covered Cramer’s tips for detecting individual stock bottoms and overall stock market mega-bottoms, but there’s one last type of stock market bottom: the Sector Rotation Bottom.
A sector rotation bottom is when an entire sector of the stock market falls out of favor and hits bottom. Like total market mega bottoms, sector rotation bottoms are cyclical, and like individual stock bottoms, sector rotation bottoms happen in good times and in bad, only they happen to different sectors at different times.
Sector rotation bottoms are often brought about by macro-economic conditions such as the Federal Reserve tightening or loosening the money supply. When the fed raises interest rates, consumers spend less, and the economy tends to slow down. As a result of the decrease in discretionary income, the kitchen counter and medicine cabinet stocks will out perform discretionary stocks. The so called kitchen counter and medicine cabinet stocks are companies like Kellogg, Proctor and Gamble, Johnson and Johnson – companies that make the products commonly found in, you guessed it, medicine cabinets and kitchens. People need these products whether the economy is good or bad.
The flip side to this is when the fed cuts interest rates, thus spurring greater borrowing and increased spending. When consumers are flush with cash, discretionary stocks do well. These are automobile manufacturers, technology and retail stocks.
The trick is to spot the point at which the cycle will change, like the flip of a switch. This is tricky because it’s essentially market timing, which doesn’t really work that well. Cramer recommends buying at the beginning of the cycle because so many people now anticipate the fed’s moves ahead of time.
If the market timing aspect makes you wary, as it does me, you may consider a modification. For instance, buy the household stocks when times are good, and hold them until times turn bad and other investors bid the price up as they pile in. This should give you larger margin for error. Or, maybe look for individual stock bottoms within an out of favor sector.
If you’re interested in more details, check out Jim Cramer’s Real Money: Sane Investing in an Insane World.
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