Economic Woes

I’m not even sure where to begin a post on the economy.  Stocks took the biggest hit since the tragedy of 9/11/01.  Then the Fed announced a bailout of AIG.  Now we hear that even the FDIC’s funds are dwindling and they might need a loan from Treasury to keep their funds at the Congressionally mandated levels.

Suze Orman spoke with Larry King about the AIG bailout.  I very much enjoy Suze’s show and her books, so I’m always interested to hear what she has to say.  For those of you not interested in the article itself, she basically says that she thinks the bailout was a good idea, but this particular section caught my eye:

“King: Is this a good time to get into the market?”

“Orman: No. It’s not a good time to get in with brand-new money. I would let these markets kind of wash themselves out. On the other hand, if you’re investing in a 401k every month with small amounts of money, that’s OK as long as you don’t need the money for 10, 15, 20 years. If you just got an inheritance and you have $50,000, should you be putting it in the stock market now? Are you kidding? These are the markets that you just sit on the sidelines and wait on the sidelines and stay away from them until everything works out.”

I thought this was a very interesting point, since I feel like the lesson is often “Buy low!  Sell high!”  Of course, we can’t guarantee that we’re actually at the low point of the market right now.

This weekend, while watching Suze’s show, she said another thing that surprised me.  She was talking with a couple who put money into a Roth IRA and the fund they chose ultimately tanked.  Their problem was letting their advisor put all of their money into one fund rather than diversifying, but she also told them that they should have pulled their money from that fund much earlier (before it lost 70%).  I was quite surprised to hear that about a retirement account, to be honest.

Based on a lot of this information, I made what I hope is not a rash decision earlier this week.  In my TSP (government version of a 401(k)), I had been investing in a target retirement date fund.  Which has now lost 15% over the past year.  Not the world’s best return.  So I pulled all my money from that fund and divided it between the two TSP fund options that actually had positive returns over the past year.  The returns are not great, and I would be getting better returns just putting my money into an ING Direct Savings Account.  Of course, that’s not exactly an option for a TSP or 401(k) (plus I wouldn’t be getting the match).

I’m not sure if this was the smartest decision or not.  i don’t need my retirement funds for a long time.  But it has been so disheartening to watch the money disappearing.  As soon as it looks like the market is going to swing back upward and start to recover, I plan to move the funds from the “safe” funds again.  But it will be nice to not see that number plummeting every month.

My Roth IRA is another story.  I’m just letting that ride for now.

I’m easily 30 years from retirement, so I’m not sure that I needed to move my TSP funds.  But along the same lines, I’m easily 30 years from retirement, so will moving the funds now make that big of a difference later?  Thinking along those lines, if I feel better about moving the money and seeing it grow a tiny bit rather than plummet like crazy, then perhaps it’s the best decision for the moment after all.

Megan Smith

Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:

In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance.  It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information.  It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck.  While that was working for me, clearly I needed a better plan.

While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.

Except that’s not what an emergency fund is for.

So I did a lot of research, read a lot of blogs, and decided that I needed a plan.  I needed to budget.  I needed to know what I was spending my money on.  I needed to prepare for the future.

I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way.  I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.