Acknowledging and Accepting our 2008 Investment Results

by Kevin on December 22, 2008

With this being Christmas week my posting is going to be lighter than usual. I’ll try to get up something for you guys and gals every day, but no guarantees.

It’s been a rough few months for everyone that has retirement savings. Fear not, we are in the same boat as the rest of you. I blog about personal finance and didn’t miss the catastrophe with our own portfolio.

As I’ve described in the past, our retirement accounts look consist of two Roth IRAs and a 401k through my work. A quick look at our IRA performance since February of this year (when we opened them):

  • My IRA: Down 26.5%
  • My wife’s IRA: Down 23.7%

Ouch, ouch, and ouch. Definitely not what you want to see, but the good news is we are ahead of the market! (At least, I think that’s good news. I wish we were ahead of the market on the positive side.)

We All Have Three Options From Here

  • Panic and sell. The markets have tanked, the government is taking on enormous amounts of debt, and the economy is going no where. Is it time to stuff the money into the mattress (or a CD)? I must admit a little piece of my brain wants me to do this.
  • Stop contributing. This is similar to the option above. Keep the money you have in the account to see if it will recover, while putting money you would normally contribute into other investments.
  • Stick to the plan. Unless you are quickly approaching retirement or your financial goals suddenly change, there is no need to make a drastic change to your portfolio. You have a long time to let your current contributions recover. Plus, as you continue to contribute today you are investing at lower prices. As the market recovers this should speed the recovery in your portfolio as well.

We are sticking to the plan and hoping that these are low prices instead of prices that will look high after the market falls again. We’re combating our eternal need for “safety” and just stucking to it. If you are struggling with fear of losing your portfolio it might make you feel better to put 5-10% of your normal contribution into a savings account. This won’t affect your portfolio’s performance too much, and it keeps you mostly invested in the market.

How is everyone else out there coping?

{ 9 comments }

Steve in Denmark December 22, 2008 at 7:51 am

I have a three pensions still back in England. I got tax relief on them whilst I was working, but as far as I can tell, after 5 years ‘away’ (April 2009), or rather, not paying UK tax, I might well have to stop contributing to them. I’d like to move them over here to DK, but the £ is lower than a Rattlesnake’s belly against the Kroner at the moment, so I may have to leave them there and stop contributing for a while until things improve. Unless I could continue contributing, without getting tax relief. However, the size of payments, coupled with the fact that I’m paying into three (at the last count) pensions over here in Denmark, isn’t in the budget at the moment. My wife has just doubled her capital pension contributions, to get the tax-relief as well. My thought at the moment is to concentrate on reducing/eliminating our ‘avoidable’ debt in 2009 and increase/sort out pensions in 2010.

I would like to say while I’m here, thanks for an excellent, useful and thought-provoking blog. A bit too US-centric maybe, but no-one’s perfect… 😉

Glædelig Jul og Godt Nyt År fra Danmark!

SingleGuyMoney December 22, 2008 at 7:57 am

I’m down over 40% in my 401k. I’ve taken the stance of choosing not to look at my account so often. I know eventually the market will improve and that I need to be extremely patient.

D.C. December 22, 2008 at 6:19 pm

Would be interested to know if IRA CD’s fall into the category of “pension plan” (i.e., as recently nationalized by Argentina).

Thank you.

Russell Fascenda December 23, 2008 at 5:31 pm

I don’t see this as a good time to sell, and surely not a time to stop contributing! I am continuing Roth-IRA contributions (started in October and will make my full $6,000 for the year).

With the long-term accounts (rollover IRA and 401(k)), leaving them alone for the most part, although I did do some consolidation a few months ago. The transfers I made I kept in alike things; equity funds into similar equity funds; fixed rate into other fixed rate.

I’m also getting more active in stock investments, though it’s a coincidence in my case that I have the funds to do that, which I was lacking the past few years.

I think now is the time to stick to the plan or resume the plan if you were out of it for whatever circumstances.

Kevin January 2, 2009 at 9:54 pm

@Steve: Haha, what a great comment. I’d love to learn more about your story of working in two different countries. If you’re interested, I’d love a guest post on the topic.

@SGM: Sounds like a plan. Look at it in 5 years or so?

@D.C.: No idea.

@Russell: Are you investing directly into stocks or increasing your stock allocation?

Russell Fascenda January 3, 2009 at 7:17 am

Kevin, I haven’t changed my asset allocation much, although my tax-deferred accounts are in mutual funds that do quite a bit of balancing for me. I was in a few retirement-date targeted funds and have consolidated into the Vanguard target funds.

I was directly invested in a few stocks prior to 2001, through NAIC (now betterinvesting.org), as a bit of a hobby. I had to sell most of those investments, fortunately at a time when they were “up” and my personal situation was “down”. I was left with a few fractional shares here and there and I’m investing in them again, and some other stocks. Now is a good time to revive my hobby.

-Russell-

Kevin January 3, 2009 at 9:13 am

@Russell: Sounds like a plan as long as you can mentally differentiate the money. I think most “professionals” encourage folks that want to invest on their own (that may or may not know what they’re doing, which you may) to stick to 5 to 10% of their portfolio.

Start-Up January 8, 2009 at 4:07 pm

You are doing much better than the market. What are you invested in?

Also, it’s important to learn from this economy by re-evaluating your risk tolerance. If this economy is making it hard to sleep at night, then you should keep more of your investments in bonds and CDs rather than the stock market. But don’t become more conservative now and then less conservative when the market rebounds as this is a form of market timing.

Kevin January 10, 2009 at 10:30 pm

@Start-Up: We’re doing better than the market because:

A.) We started in February/March so we didn’t have as far to fall
B.) We consistently put money in on a monthly basis — so as the markets fell, we kept getting cheaper and cheaper prices (and thus our losses were lower than if we had put it all in at the beginning).

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