I realize that you are used to visiting on Mondays and reading about menu plans, but I want to talk about something more important: your retirement plan. In writing this post, I am going to assume that you are taking full advantage of any company plans, 401Ks, or IRAs for which you qualify.
Most people have a “let it sit and forget it” attitude when it comes to their retirement plans. That is until something bad happens in the stock market and then they react by doing the opposite of what they should do: they panic and move everything to government securities, or worse they cash out and pay penalty fees on top of taxes.
The first thing you need to remember is that losses are only paper losses until you sell and make them actual losses. However, the same is true for gains. A gain is only a paper gain until you sell and realize those profits. Here is an example of how I have moved money around in our funds to make gains permanent:
In the fall of 2007 when the S&P 500 was around 1534, I transferred our funds from an S&P Index fund to a government securities fund. Once the S&P was under 1000, I started slowly transferring money back into the S&P fund (with a couple of bigger transfers when I liked the price). I bought all the way down and back up to 1000 and then held it until it reached 1200. I transferred the money back into a government securities fund on April 14, 2010 when the S&P closed at 1210.65 (I actually tweeted my last transfer on my twitter account @AleasLeftovers).
Did I sell at the absolute highs? No, but I sold close to the peak. Did I only buy at the absolute bottom? No, I bought once I thought the fund was undervalued and stopped buying once I thought it was overvalued. How did I know when to make these transfers? By reading financial articles and observing trends. I realize my food waste posts are captivating, but your time would be better spent reading the Wall Street Journal Online and other financial papers.
If you have not done so, you should read everything you can on your retirement plan. By doing so, you will know what options are available to you.
- What types of funds are available for you to invest in? Most plans have several options.
- How many transfers are you allowed to make a month?
- Can you make transfers and change allotments online or by phone?
- What time do you need to make changes to make them effective that day?
Next you need to keep a record of what the share price is when you buy or transfer funds (even if it is automatic). When the S&P is around 1500, the share price for my S&P Index Fund might actually be around $16.84. Knowing what you actually paid for a share, makes it easier for you to average the cost and calculate your profit or loss when you want to sell.
Look at the markets every single day, not just when they are making the news. If you just hear up or down and don’t take notice of the actual amounts you will miss what direction the market is actually moving. It can close up 3 days and down 2, but be down for the week depending on how much it moved each day.
Start reading financial articles today! You don’t have to buy magazines or newspapers; there are many online resources including MSN Money, Wall Street Journal, Money Magazine, and Fortune. Pay particular attention to the articles that address the types of funds available to you in your retirement plan like: Small Cap, Large Cap, S&P Index Fund, and Government Securities.
Read a wide variety of financial articles and you will start to notice trends. For several weeks, the term overpriced kept emerging in the articles I was reading. Sometimes it showed up as a question: Do you think the markets are overpriced? Predictions started being made for when investors would start engaging in profit taking. The highest price I read predicted for the S&P this summer was 1300, which is why I made the conservative decision to move my funds on the first day that it reached 1200. It may still reach 1300, but I know that I do not have the stomach for stock market rollercoaster rides.
While I encourage you to read as much as you can, don’t overreact to the hyped headlines like: Dow Drops on Worries Over Greece Riots (I apologize if this is a real headline) and instead develop your ability to read between the lines. Here is my analogy for what happened last week: It is a quarter past bedtime, but your children are playing cheerfully, so you turn a blind eye to the clock until you hear a harsh word and then you shout, “Okay, that’s it. Time for bed”. Same thing happens with the stock market. It was half past selling time, but everyone was playing nicely, so investors ignored the time until Greece or (a fat finger) reminds them and they all start selling. Instead of waiting for a problem to arise, you have the option of being disciplined and putting your kids to bed on time, as well as transferring your funds from a stock market fund to a safer interest bearing account when it’s selling time.
Once you have familiarized yourself with your accounts, feel comfortable with your knowledge of the way your funds operate, and the markets at large move, it is important for you to start making plans for your accounts. You should have a transfer price both for taking profits and minimizing losses and know what fund you will transfer your money into to keep those profits safe. For our S&P Index Fund I had two sell prices: 1200 to lock in gains and 1100 to minimize losses if the S&P started to free fall. I can not program my sell points in on our retirement funds like I can with individual stocks through a brokerage firm, so it means I have to keep an eye on the markets when they are nearing those numbers and be ready to act. Now that I am out, I will start planning at what point I will reenter.
One last point and I will conclude this long pictureless post. Just because the money in the retirement funds is in your husband’s name and through his job does not mean that you can not help him manage it. If he is the sole provider, he might not have a lot of time to devote to actively managing the funds. And even if he does, your well read, educated input can be a good counterpoint to water cooler financial advice.
Do you actively manage your retirement accounts?
Grace says
Kudos to you for this post! Definitely has me thinking….
Alea says
Melissa, No changes would be extremely limiting! We used to be able to make unlimited changes, but now we can only make 2 per month which means I have to use those 2 transfers much more judiciously.
Steady Plodder, My husband managed our finances for the first 10 years of our marriage. The ironic thing is that as he became more successful and earned more money, he had less time to devote to our personal finances. So although I would prefer that he manage our finances (cause it is kind of scary making big money decision)it makes more sense in our situation for me to handle it.
Steady Plodder... says
Great post and great personal challenge! While I manage the household expenses which allows us to contribute towards our retirement, my husband has always managed the retirement accounts. I still want him to have that "job" for now, but it would certainly be beneficial for me to learn some things about what he's doing and to read a bit of the Money/Finance section of the newspaper each morning!
But…I still enjoy reading your Menu Plans and Food Waste posts! 🙂
Melissa says
This is very good advice. When I was working, we weren't allowed to change the investments in our 401(k) accounts; all we could do was make changes for our future investments. My husband's account offers more flexibility, but he takes care of managing it. He's good at it and he enjoys it, so he got the job. 🙂