uncertain about my Fidelity IRA and the economy

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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Reply to
kastnna
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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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Reply to
honda.lioness

rolled off the end of what system?

Xho

Reply to
xhoster

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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Reply to
Tad Borek

Here in Minnesota, you typically only get 6 months of unemployment checks Once you are done, you drop off the system. After a year, you no longer get updates from them, unless you go back and register again. Most people who haven't found a job within a year simply drop of the system after a year, and they are no longer counted as unemployed.

A funny thing happens when the economy does perk up. A lot of these long-term unemployed people come back into the system because there is a chance of getting a job. So, when the economy gets a bit better, unemployment numbers don't reflect the better economy right away. There is a lag period as the chronic and long-term unemployed come back into the system.

-john-

Reply to
John A. Weeks III

Eh, no. At least not as it relates to the normal headline unemployment number. The headline number is from the household survey taken by the Feds. They contact a random number of households and ask "Are you employed?" and "If not, are you looking for work?" A person is counted as unemployed if the answers are "No" and "Yes" respectively.

There are statistical adjustments to that base number than tend to overestimate employment in times of contraction and underestimate it in times of expansion. Remember the 2002/2003 "jobless recovery"? That was, at least partially, a statistical anomaly.

But you're also right that people get discouraged and stop looking for work. That drops them off the unemployment statistics ("No" to the second question). When things turn up, they start answering "yes" and start getting counted again.

-- Doug

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Reply to
Douglas Johnson

Eh, still no. Your correct that the BLS does a current population survey (CPS) monthly to determine the unemployment rate. But the BLS is adamant that they never directly ask whether someone is employed nor are interviewees allowed to decide their own employment status.

for more info see:

formatting link

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Reply to
kastnna

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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Reply to
joetaxpayer

Sorry. I over-simplified. But that is the essence of the headline unemployment number, not whether someone is registered with a state employment agency.

-- Doug

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Reply to
Douglas Johnson

The CPS, used to estimate the unemployment rate, is a *survey*. It is unrelated to any states unemployment insurance system.

This is simply not true.

Xho

Reply to
xhoster

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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Reply to
kastnna

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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Reply to
joetaxpayer

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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Reply to
Avrum Lapin

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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Reply to
Will Trice

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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Reply to
Will Trice

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