uncertain about my Fidelity IRA and the economy


It is I, thanks. I am posting via google.com whilst I troubleshoot problems posting the old way.
snip for brevity

Should they account for outlet/wholesale? Rhetorical question, though you are welcome to respond.
As I think I have noted before, I think the CPI is useful as one gage of the economy as a whole. I do not think it is very useful for individuals. Inflation in specific areas, though, is very useful to individuals for planning. Gasoline, for example.
Elle
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On Aug 11, 8:16 pm, snipped-for-privacy@gmail.com wrote:

For the record, I don't know the answer to that rhetorical question! :-)
I think I could make an argument for why they shouldn't and I don't know why Boskin suggested they should. It has been a long while since I read the Boskin Commissions findings.
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On Aug 11, 8:45 am, snipped-for-privacy@gmail.com wrote:

Not sure I have seen such data; I've only seen estimates but I can't seem to find them now. If I do I will post them. For now, this shows the years where the computation changed (there's a footnote for every year where that the direct comparison is not valid). http://www.bls.gov/cps/cpsaat1.pdf
The following article: http://www.cepr.net/index.php/press-releases/press-releases/unemployment-rate-rises-to-5.7-percent,-economy-loses-51,000-jobs / puts current unemployment at 10.3%, but I don't think it's necessarily using the methodology that can be compared to the earlier years of the previous link. So most likely, the comparable number is somewhere between the official BLS number and this one.
I don't have anything I can point to for real inflation numbers.

There's the catch. If I buy them to hold for 30 years and I'm under at the end of those 30 years, can I reverse that time? I cannot. So I have to decide how much risk I can take. The funny part about the whole retirement investing game is that if you can afford to take the risk then you don't need to be invested in stocks. This last comment is based on what I got from Zvi Bodie's "worry free investing".
Anoop
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anoop wrote:

Bodie wrote that book when TIPS yielded 3%. That's inflation, plus a 3% 'real' return. The math of relying on TIPS is quite different as that return drops to 1%. The tax on the inflation portion is enough to wipe out the real return altogether. The irony here is that when the book was published, 5/15/2003, the TIPS return had already dropped to 1.1%, and the strategy proposed in the book was already of little use. One using his TIPs would need to save a huge percent of their income so their withdrawal rate will match the TIPS return.
Joe
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I think his point is that if you're unable to put away that "huge" percentage that will get you to retirement with zero-risk investments, then you're basically taking a gamble and you may or may not actually make it. Investing in the stock market doesn't require a lower rate of contribution unless one assumes that past performance is a predictor of future earnings.
Anoop
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Re a comparison of unemployment using the current method and the aforementioned "historical method":

This is a nice citation. Varying from what you claim, though, the footnote states that the given years are not "strictly comparable with data for prior years." Footnoted are nine of the years in the range 1942 to 1994; and every year from 1997-2000 and then 2003-2007. The footnote sends the reader to http://www.bls.gov/cps/eetech_methods.pdf , which on page 189 sends the reader to several sites giving how the numbers changed using the different methods. For the most recent years and rounding to the nearest 0.1%, the differences in unemployment rates are usually 0. The biggest difference is shown in one table as being 0.5% (as in 6.0% vs. 6.5% unemployed for Asians around 2002). I do not find anything to suggest that a former method of measuring unemployment yields a "much higher" figure for unemployment.

http://www.cepr.net/index.php/press-releases/press-releases/unemployment-rate-rises-to-5.7-percent,-economy-loses-51,000-jobs /
The articles says, "Partly as a result of the large rise in the number of involuntary part-time workers, the Bureau of Labor Statistics U-6 measure of labor underutilization, which includes discouraged workers and involuntary part-time workers in addition to those counted as unemployed, rose to 10.3 percent in July. This is only slightly below the 10.4 percent peak in the last downturn, which was reached in September of 2003."
"Labor underutilization" is not the same as "unemployment."

Are you saying you do buy stocks with the intention of holding them for the long term? Or do you never buy stocks?
Elle
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On Aug 11, 6:07 pm, snipped-for-privacy@gmail.com wrote:

I tried to skirt it because it's not a yes/no answer.
In retirement accounts I used to be 100% S&P, then switched to 80% S&P/20% EAFE, then to 60% S&P/20% EAFE/20% cash, each time thinking that was a good long-term allocation. Most recently, a few months ago I switched to 100% cash because I think I can afford the risk of trying to time the market. If I fail, I will chalk it up to experience, otherwise, I will have saved myself some losses. I don't know when I will jump back in, but I probably will if the market drops another 10% or so.
Outside of retirement accounts things are worse. I started buying stocks in 1999 (because that's only when I started having money to do so) and then the market tanked. So ever since then, I've been claiming the max capital loss. I do occasionally buy stocks now, but I sell almost immediately as soon I have a small gain (5-10%). But that's just for playing; it's not an investment strategy.
Anoop
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snip
I trust you know you might also miss some gains. If history is a guide, you are also missing the triple compounding effect of investing in stocks for the long run: Reinvested dividends purchase shares at a relative bargain; dividends rise; share prices rise.
You originally queried: "Does it make sense to stay invested in the market when we [are in a recession etc.]?' It does when one is investing for the long run. As importantly, one must remember that stock market increases should not be counted on as the main path to reach one's retirement goal. Rather, saving lots per a specific plan and doing so regularly should.
Trying to time the market (= going for short term gains) never makes sense, AFAIC. I know you know many of us here feel this way. You have also said you are prepared to pay the piper should you fail at timing. I am posting to clarify a little that, to me, "financial planning" generally means a strategy for the long term, whereas right now you are attempting a short term, make money fast, strategy. The long term strategy should mean, for most investors, a broadly diversified stock/ mutual fund portfolio indicating a bet on the economy for the long run. A short term strategy like timing is a bet on being able to guess numbers with more specificity than is appropriate, IMO.
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anoop wrote:

What was the timing of each of those switches? Something every investor needs to be conscious of is the human tendency to chase performance, with the possible outcome being returns much worse than the long-term average returns on the underlying asset classes (or stocks, or houses, or whatever). It could even be net losses after many years of investing. It sounds like you've had a few cycles of this...has your timing been excellent, good, so-so, or terrible?
Some reference points: the S&P 500's recent above-average years were 1995-2000 (peaked in March 2000). International stocks, as measured by the MSCI-EAFE index, had a couple good years in there, but it's the period 2003-2007 where international stocks caught a lot of people's attention, driven largely by the fall in the dollar. And as for cash - summer-to-fall 2007, in hindsight, was one of the better times to "go to cash" in many years, as many equity asset classes fell 20% or more after that. Where in this time line did your switches from S&P to EAFE to cash fall?

Please take this as a friendly nudge from cyberspace...fantasy football is for playing, but the point of investing real cash is to make money! If you've been claiming the max capital loss since 1999 you have $3k per year, $24k, in realized losses, actual money out the door (plus whatever carry-forward is left). And it sounds like it's from stock-picking. Perhaps I'm mistaken but I'm hearing alarm bells about poor timing. If that's the case, it suggests you consider a long-term strategy that in no way relies on your ability to time purchases...?
-Tad
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Tad Borek wrote:

A Boston-based financial services research firm, Dalbar, inc, concluded that
"For the 20 years ended Dec. 31, 2006, the average stock fund investor earned a paltry 4.3 average annual compounded return compared to 11.8 percent for the Standard & Poor’s 500 index."
This would appear to confirm your thoughts. It also points towards the Jack Bogle approach of low cost indexing. Hindsight 20/20, I'd guess that most people would be happy to have gotten 11.7% (or 11.62 depending which fund had what fee) over that same time.
Joe
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Joe, having not personally read the study, did that 4.1% retun take taxes into account?
Although not a certainty, market timing is more likely to result in short term cap gains than buy-and-hold investing. It's possible that not only did stock fund investors underperform the benchmark, but they incurred greater taxes to boot.
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kastnna wrote:

No mention of taxes or method used to derive the numbers. Given the flow of funds graphs I've seen, their conclusion seems legit. Joe
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Peter Lynch came to the same conclusions when he wrote (and I don't remember where or when) that most investors in Fidelity Magellen did not share the long term term results of Magellen because they tended not to buy until Magellen had had a long upside period and then they sold well after the fund hit a peak ( they bought high and sold low)
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kastnna wrote:

Indeed, but even if the trades don't cause a shift to short term cap gains, paying *any* taxes can hurt. Elle eloquently pointed out the "triple compounding effect" that is missed when money is not invested. However, taxes leave you with less money to reinvest when you are ready to get back in further /compounding/ the problem :) . An ancient article in SmartMoney, "Perfect Timing Is Still Bad Timing" (sorry, don't know the year - it was an October issue, probably late 90s), estimates that 40% of gains are consumed by trading in and out with *perfect* timing due to federal and state income tax and transaction costs. They estimate that you need to near-perfectly time a market drop of at least 20% to profit from a timing strategy. If the drop is less, you lose (vs. riding out the drop). If you mess up the timing, you lose.
Of course, given low transaction costs, this effect is much less pronounced in tax-advantaged accounts.
-Will
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anoop wrote:

So? Are you jumping back in? This week the market hit levels more than 10% lower than that the day you made this remark.
-Will
william dot trice at ngc dot com
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It depends on what history you look at. The 80's real estate crash in Texas (for similar reasons as the current broader crash) was around 15 years from peak housing price to recovery to the same price.
Yawn. I've seen this movie before. Banks failing all over the place. Real estate crashing. Businesses closing because their credit lines have been pulled. Federal bail outs. Foreclosures. We survived that one. We'll survive this one.
-- Doug
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On Mon, 11 Aug 2008 09:00:20 -0500, Douglas Johnson

Every recession in history has started for different reasons, lasted for different periods of time and caused varying amounts of pain.
The one thing they have in common is that they all ended.
-HW "Skip" Weldon Columbia, SC
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I agree with Douglas Johnson's point. Furthermore, recently a few people here observed that where they are, housing has not had a massive crash. (To add to the data: My own house is holding its phenomenal gains from the last five years. It is about 5-10% down from two years ago.) From my reading, your allegation does not apply to much of the country's housing. Lastly, the flavor of your post seems to me that of investing for short-term profit in a house as opposed to buying a house for comfortable shelter. In many parts of the country, even those whose house does not appreciate over the next five years may very well still be ahead when it comes to (1) how much they would have spent renting; and (2) the superior quality of life they have enjoyed. Come five years, I can see many people saying, "Nah, my house has not appreciated. It's even down about 5% from when I purchased it. But it sure has beat renting. I love my house. If I could go back, knowing what I dow now, I would not trade the last five years in it for an apartment."
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Me too, especially with all the financial blogs that I read. Here's an interesting article on the state of things... http://www.economist.com/finance/displayStory.cfm?source=hptextfeature&story_id 751139 I think things are going to get worse before they get better so I have moved most of my savings out of the market. I intend to get back after I stop seeing so much negativity in 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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anoop wrote:

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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