uncertain about my Fidelity IRA and the economy

The Reserve Fund was created in 1970. My father was an early adopter.

As Malkeil pointed out, it's not the existence of a vehicle that matters, but when it "catches on".

Mark Freeland snipped-for-privacy@nyc.rr.com

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Except that this is just a paper loss that you wouldn't have to realize if you don't have to sell.

-Will

william dot trice at ngc dot com

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We know that the population of the U.S. keeps buying food, clothing, and shelter, so a market for these and that which goes into making them will continue. We know that universities and businesses continue to innovate new products. We know that only a small fraction of the U.S. population is losing their homes and jobs, much smaller than during the Great Depression. We know that bubbles and their corrections occur. This "problem economy" will pass.

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As an example, look back to 1975. We had years of falling DOW, oil shortages, price shocks, and two governments that were unable to do anything about it (Nixon and Ford). As dark as it looked, it would get even worse as interest rates spiked to 20% under the Carter administration.

So, was that time to put everything under the mattress and buy more ammo for the shotgun? Not at all, you would have missed the historic market runs of the 80s and 90s.

Like the reply above says, this will pass. It may be close to done, or it might get even worse. But historically, the best time to get in is when everyone else is getting out, the TV people are predicting doom, and other investors are puking their guts out.

-john-

Historically, if one was planning to live in a house for 5 years, buying was a no-brainer. For someone who bought at the peak of this bubble, that is not true...even the most optimistic housing analysts are saying prices are expected to keep dropping for the next year. There is no hope that housing will return any where near the peak in 5 years (or perhaps even longer).

There are some very fundamental changes in the way people think about their jobs and careers nowadays as well.

I am not predicting complete doom, but I think things have a bit of a ways to go before we see markets recover. I think we will only start to see the true extent of the current financial mess after the elections.

Anoop

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But I think that has been true every year of my life. I recall back in the 70s when the big steel plants started closing down and we heard the word "rust belt" for the first time. Then we had the big white collar layoffs in the mid-70s. Then regional manufacturing plants started to abandon middle America and go overseas in the late 70s, early 80s. In the middle 80s we saw the far factories start closing as Japanese cars became viable. More recently, we saw all the electronics manufactures leave the US in the late 90s, and the contract manufactures evaporate after Y2K. And now the IT jobs are going to India and the call centers are going anywhere they can find people that speak English.

Rather than gloom and doom, think of the economy as always being in the state of change. It might be for some individuals that it was good up to one point, then an event happens, and then their personal economy is in shambles. But you have to resist trying to look at the economy as a whole based on one or two data points. As a whole, the economy is always in a state of change. Just ask the buggy whip manufactures association what their outlook is.

-john-

Thanks for the info. It helps to know these kinds of problems have been happening all along with jobs.

There are a few other things that bother me about the current situation:

- The way unemployment data are reported has been changed. So the unemployment (using historical methods) is actually much higher than is being reported.

- The way inflation is computed has been changed. Again, it is way higher if historical methods are used.

- Finally, banks have tons of assets whose worth is unknown (CDOs).

So back to the investing thing...does it make sense to stay invested in the market when we know all of this is going on, or does it make sense to stay out of it until at least some of these issues are addressed?

To me, it looks like the govt is using taxpayer money to plug holes as and when they can no longer be contained. We know there are more holes coming...their existence will be denied and contained for as long as possible. We don't know how many or how big. A number of economists have been warning about these (not just one or two). Should they be disregarded when it comes to investing?

Anoop

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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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Unemployment is always under reported in the current system. They don't count people who have given up, or have rolled off of the end of the system. The CPI is also under reported because it doesn't include a lot of everyday items that people use.

Whenever you try to time the market, you are guessing or speculating. Studies have shown that slow steady approach of dollar cost averaging into the market is nearly always going to do better than the market timers.

You want to be in when it is low so you can buy more shares at these low prices, and take advantage of splits and distributions at these low prices. Then, when the prices go up later, your account grows in value dramatically.

Like they say, pundits have predicted 27 of the last 3 recessions.

-john-

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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Could you please provide some links that give the unemployment rates using the current method and the method that has been used historically? I also want to see a comparison of unemployment during the Depression and today, preferably using both methods.

Same question.

When you buy stocks, do you plan to hold them for the long or short term?

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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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Elle, is that you? If so, good to have you back with us.

I would also like more details on this, especially regarding inflation. My understanding, in alignment with the Boskin Commission, was that actual inflation is LOWER than reported. The reason we changed from historical methods is that they were INACCURATE.

Even our new CPI measures (CPI-U, CPI-W) do not fully account for the inherent biases (namely substitution, outlet/wholesale, new product, and quality variance).

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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).

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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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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"anoop" wrote 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

"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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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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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

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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