uncertain about my Fidelity IRA and the economy

I have been somewhat nervous about the economy. I feel that if the Iraq war does not end soon, or that the US attacks Iran, the economy may get very bad.
I also have watched some conspiracy stuff on how the federal reserve is actually controlled by the Rothschild family and how Milton Friedman had said that the Federal Reserve caused the great depression and could have prevented it. This seems somewhat chocking, but I have seen a video of Friedman saying that, and although I may not agree with all of his economic ideas, I think there may be something to that assertion of his and others. Bernanke had apparently agreed with what Friedman had said and acted as if it was all a mistake and part of a learning process, though in reality it seems like the Fed in the end is going to protect certain Wall street entities and not the middle class type investor.
The guy at Fidelity Investments discouraged me from moving my IRA into FDIC CD's. He recommended a managed portfolio type account that he says has become popular, maybe it was PAS or something. I am considering putting a large chunk in that to see how it does. He also said that investments are covered with SIPC, but I see that that is a private insurance. With FDIC, I guess the govt can print money if it had to, though that would devalue what you get anyway. He also gave the usual argument that moving to CD's you will get low yields and all, but I think if I hear much more bad economic news I may be prepared to move into CD's, I am somewhat conflicted on this and am afraid that my gut feeling of moving alot of my assets into CD's may be the thing to do, but the recommendation not to leaves me a bit uncertain of what I should do.
He also had said that the S&L crisis in the 80's caused alot of people to think it was the end of the world. I have heard stuff like that on the radio, one guy claiming that the 70's was worst than the depression, but that seems wrong because the depression was a greater hardship for the common man. It seems like economists measure the economy based on how a large corporation would view things and not the average person trying to live a life free from stress and hardships. That leaves me feeling frustrated with many economists, and if you listen to The Electric Politics podcast on the internet, they have an episode that argues that economics has become some high ended mathematical modeling approach that is actually disconnected from the real world to a large extent.
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Reply to
Larz
Larz writes:
That's no big secret. It is broadly accepted macroeconomics that the Depression-era Fed really bleeped it up by persuing contractionary policies. Which is a far cry from saying that the Depression-era Fed wanted to cause/prolong the Depression. Only the tinfoil hat crowd believes that.
The modern Fed (and Bernanke, whose PhD thesis was all about what went wrong in the Depression) have learned from that mistake, which is why the Fed is currently turning on all the liquidity taps as fast and hard as it can (which of course has its own set of negatives to watch out for).
-- Rich Carreiro snipped-for-privacy@rlcarr.com
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Reply to
Rich Carreiro
Larz,
Aside from a lot of speculation, all you told us is that you are thinking of "selling low" and investing in "safe" (read: no growth) investments. "The guy at Fidelity" recommended against this.
Some important questions: How old are you? When do you plan to retire? How much money do you have invested? How much do you plan on needing in retirement?
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Reply to
kastnna
When in doubt, go 50% CDs and 50% what you have now. I would bet five years from now your CD half will be way behind your other half. But peace of mind may be worth something.
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Reply to
rick++
Larz, I have to say I share your concern. I watch my IRA plummet and consider taking similar action as you described. As of now I am opting for sitting on the sidelines debilitated by fear. My advisor keeps saying to me that as long as you own, or lend to, quality companies this is the best course of action. Truth is, I don't think anyone has a clue as to how this problem economy will resolve itself.
Michael
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Reply to
Michael
resolve itself.
I think you're right Michael, but if no one has a clue, selling could be as incorrect as holding could be.
Even if the doomsdayers are correct and the market does fall, how will we know when the decline is over? The Dow has climbed almost 700 points in the past week. How far does it have to climb before we decide the worst is behind us and it's time to reinvest? It's also back down 150 points right now. Is this a one day "fluke" in our climb to the top or is this further evidence of a downfall?
If you are investing for the long term, and don't anticipate needing the money in the near future, the average investor (me included) has historically experienced much more success by "sitting tight".
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Reply to
kastnna
Me too, especially with all the financial blogs that I read. Here's an interesting article on the state of things...
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751139I think things are going to get worse before they get betterso I have moved most of my savings out of the market.I intend to get back after I stop seeing so much negativityin the media, even if that means missing out on some gains.
Were they able to show you any numbers on how PAS has done for the last few years for an account with your investment objectives?
Anoop
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Reply to
anoop

I'm sure you know this, but the frequency and mood of the media tends to be a contrarian indicator. Buffett said something to the effect of, "Be fearful when others are greedy and greedy when others are fearful."
Along those lines, Suze Orman recently decided that straight indexing in an S&P 500 index fund is no longer correct for investors, but that they should turn to active management through ETFs (not that I give much credence to Orman). An editor's note I read said the same thing about Burton Malkiel (although I cannot locate a source that quotes him). Does this mean that we should all be piling into S&P 500 index funds?
-Will
william dot trice at ngc dot com
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Reply to
Will Trice
Well, I got fearful back in 2004 and didn't buy a house.
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decided to live with the risk of being "priced out" rather thanbeing chained to a mortgage I could barely afford at the time. I continue to be fearful now because of all the numbers I'm seeing on the financial blogs. The financial system doesn't look healthy and the govt seems to be sending out ambulances on a daily basis.
Several banks are on the watch list for going bust and earnings projections from several companies aren't looking good.
Anoop
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Reply to
anoop
Will Trice writes:
Malkiel always was in favor of the broadest index possible. When he first wrote Random Walk, it was very hard to implement his plan. As index funds came available he was quick to move to broader indices - first the S&P 500, and later a total market index fund.
The first edition of his book came out in '73 - there were no money market funds, no NOW accounts, no index funds at all.
Shortly after my book was published, the "index-fund" idea caught on. At first, only large pension clients were offered this investment opportunity. ...
In 1976, a fund was created [ the Vanguard S&P 500 index fund]...
But now, as one of the earliest supporters of the 500-Stock Index, I want to alter my advice... I now believe the best general U.S. index to emulate is the broader Wilsher 5000 Stock Index -- not the S&P 500.
He simply recommends these indices as a vehicle for achieving the broad diversification and low costs which are his real goals. I suspect that the most recent update of his book (my copy is that '96) bring in ETFs, expand the international scope of diversification, etc.
FWIW.
Reply to
BreadWithSpam
house.http://tinyurl.com/62sosz> I decided to live with the risk of being "priced out" rather than > being chained> to a mortgage I could barely afford at the time.  I continue to be> fearful now because of all the numbers I'm seeing on the financial> blogs.  The financial system doesn't look healthy and the govt> seems to be sending out ambulances on a daily basis. Congrats on your good fortune inre your housing decision. However, Will is correct that history has repeatedly suggested that when the general investing public thinks one thing, it's usually profitable to do the opposite. The housing story is purely anecdotal. I believe the phrase is "even a blind hog finds a nut from time to time". Then again, I could be mistaken. Perhaps you have never been wrong about a financial forecast. But even Buffett can't make that claim.
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Reply to
kastnna
Will, pardon my ignorance, but could you please expound on this. ETFs are passive index trackers by nature. What does Orman mean by "active management through ETFs"? Is she simply stating that indices other than the S&P should be held (EFA, RWR, IWO, etc...)? Is she saying they should be actively bought and sold or does she consider having more than just the S&P make the portfolio "active" in and of itself?
Thanks. I don't listen to Orman, so this is news to me.
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Reply to
kastnna

house.http://tinyurl.com/62sosz>>I decided to live with the risk of being "priced out" rather than >>being chained>>to a mortgage I could barely afford at the time.
I'm not as quick to find that non-purchase so fortunate. Zillow shows prices (US, I know every city is dramatically different) up about 30% over that past 5 years, still. Right now, we are back to mid-2005 price levels. What's curious though, is that 2004 saw a wild swing in interest rates for mortgages, ranging 5.5-6.5%. I got a 15 yr fixed, 5.24% at the low of 03, and right now, the 30yr fixed appears to be running 6-3/4.
Hindsight is 20/20, of course, and location is everything. In 2004, you bought in the right city and caught a good rate, you are happy today. Wrong city, and a subprime mortgage, you're in foreclosure.
(FWIW, my town didn't see the same bubble. In 5 yrs, we peaked at about a 15% gain, vs US about 41%. We are still up 4.1%, vs US 30%)
Joe
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Reply to
joetaxpayer
So do I, for what that's worth. I also think most of the downside is behind us and it will be a long slow recovery.
The good old sell low, buy high strategy. Seriously, I really, really understand how hard it is to see your portfolio going down day after day. But selling is a symptom of a problem. Either your investments are too risky for your risk tolerance or you are paying too much attention to the short term news.
Certainly, if you not sleeping at night, you need to take some volatility out of your portfolio. If you need some or all of the money before you think things will recover, you need to move it to less risky investments.
But both of these should be fairly long term changes in your asset allocation, not just temporary until the media starts cheerleading the market again.
Too much reading of investment news leads to the herd mentality (sell low, buy high). If you are going to actively manage your investments, you need to go against the herd. Buy low, sell high means you have to buy when everyone else is selling and sell when everyone else is buying.
-- Doug
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Reply to
Douglas Johnson
The Wilshire 5000 is a broader index and would be preferable for reducing risk. But we should also have some foreign stock exposure, so we need some ETFs to cover the rest of the world.
A person may want to be overweight in some sectors such as energy or alternative energy and ETFs give an investor to make the right balance.
-- Ron
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Reply to
Ron Peterson
I was just taking the OPs statement at face value. Thanks for the additional data. It only helps to reinforce the point we (you included, I believe) were making.
Also FWIW, my town didn't see the bubble either. Avg time on market lengthened, but prices didn't drop.
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Reply to
kastnna
Thanks. I am a big proponent of ETFs. 12 of them comprise my entire portfolio.
The idea is that a handful of ETFs can cover almost the entire market and therefore get very close to the efficient frontier described in Markowitz's Modern Portfolio Theory. However, I almost never buy and sell other than to rebalance and change risk tolerance as I age, so it's hard for me to consider that "active". I guess jumping in and out of sector ETFs is assuredly "active", however.
[Short plug on passive investing: using the diversified ETF portfolio mentioned above (beta = 0.95) I have consistently outperformed the S&P and Wilshire 5000 in every year since creating the portfolio (5 years ago). I am also down 3.5% LESS than the S&P currently is this year. I don't credit my financial prowess in the slightest. A passive, low cost, rebalanced, diversified portfolio gets all the credit for this one.]
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Reply to
kastnna

Are you any better off in affording that mortgage you would have had today? If so, would you have to sell today? Are you in the position to buy today? Had the house you want to buy declined in value since 2004? The answer would have to be "yes" to all these questions for your decision to be a good one based on timing.
A spokesperson from the FDIC said on CNBC this week that on average 10% of banks are on the watch list at any one time. And at any time you can find several companies with crappy earnings projections.
-Will
william dot trice at ngc dot com
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Reply to
Will Trice

Yep, for us it was a peak of about 9%. A recent appraisal puts us just a little above break-even over the last 5 years.
-Will
william dot trice at ngc dot com
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Reply to
Will Trice

I don't listen to her either, it was the Malkiel comment that grabbed my attention. Orman is saying that ETFs should be actively bought and sold, "I think in this economy you need to manage your money more actively."
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An editor's note I read referenced this article and lumped Malkiel in with Orman, but the only actual quotes I can find from Malkiel are along the lines of Bread's post concerning the use of more index funds to get broader exposure.
-Will
william dot trice at ngc dot com
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Reply to
Will Trice

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