Wednesday, November 12, 2008

Not Investment Advice

I discovered something interesting yesterdayL There are mutual funds that are designed to do the opposite of the stock market. In other words, if the Dow goes down 3%, this fund might go up 3%. Or some will target double the difference. So if the Dow goes down 3% it goes up 6%. Of course this is dangerous, because if the Dow goes up 3%, you lose 6%.

They're called "inverse index funds," or sometimes just "bear funds".

I always assumed you had to be connected and rich to do this kind of stuff - you know, people who can afford to buy into hedge funds, or at least pay an expert stock broker to hook you up with margin accounts and derivatives and other investment voodoo. And all that incomprehensible stuff is what made the financial world such a mess in the first place. Turns out, it's not that complicated. In fact, it's as easy as putting money into a mutual fund. It is putting money into a mutual fund.

Of course all this assumes that the investment bank operating such a fund doesn't go belly up. One person I know lost more than most people get paid for a year's work, on a "safe, conservative" investment managed by the now defunct Lehman Brothers. Poof.

Truthfully, I wouldn't have any money in the market at all if I could help it right now. But I do have half a career's worth of retirement money, which cannot be withdrawn as long as I keep my job. I don't enjoy the idea of profiting from the misfortunes of others, but I also don't enjoy the idea of losing our house.

Though I can't withdraw the money from my retirement account, what I can do is part ways with the pre-packaged investment models ("aggressive", "moderate", "conservative") and even the pre-determined mutual fund list. I have the option to do something called a self-directed brokerage account with my 401k. "Ask about it at work!"

I'd still rather get out completely, but thanks to this small piece of luck (the self-directed brokerage account option), I can at least invest in any mutual fund or stock I want. Or cash. The vast majority of my account has been sitting in cash for more than a year now.

I did some homework, read some books, and was doing pretty well for most of the year - treading water if not coming out slightly ahead ... which is unusual given my poor history of investing. I worked for WorldCom. Nuff said.

Anyway, since right now everything is deflating in value, the fraction I had invested is getting beat up along with everybody and everything else. And I'm not an optimist when it comes to the financial markets. The Powers That Be are using the "kitchen sink" strategy, and things are getting worse instead of better. Auto behemoth General Motors has been given a price target of zero dollars per share by at least one ratings agency. The US Postal Service is about to have its first ever layoffs, to the tune of 40,000 people. Circuit City is praying for a Christmas Miracle to save themselves and all the malls they inhabit. The USA may lose its all-important 'AAA' credit rating, while other countries (entire countries) are on the brink of bankruptcy.

But then, you already knew I have some doomer tendencies.

I've had to accept the fact that I just can't be too attached my retirement funds at this point. But as long as they're held captive anyway, and as long as things look so bleak in the financial markets, let's just say that something called DXD is my friend.

Just remember: Don't ever, ever take stock market advice from a blogger. Or a stock broker. Invest in useful, durable stuff, garden tools, seeds, debt reduction, and family.




At 11/12/2008 9:50 PM, Blogger Katie said...

Seriously great advice. My garden has never been bigger or more tenderly tended than this year. Because if all else goes bad, we can still eat.

And I am at the age where all of my friends are starting to have kids. We have made the decision to have kids as well, because as one of my friends put it so well, "Rome may fall, but someone will need to be here to rebuild it." Is that what you meant by family?

At 11/12/2008 10:20 PM, Blogger e4 said...

Katie - "Family" is open for interpretation. Whatever seems appropriate - time, effort, love, security, long-delayed dental work, counseling, board games, genetic material...

Family can be a pain in the butt, but it still trumps money and stuff.

At 11/14/2008 9:44 PM, Blogger Wendy said...

Wouldn't it be great if your 401K could pay your mortgage?

If I could spend all of my money on making my house my own and making my 1/4 acre more self-sustaining, I wouldn't need a retirement account.

At 11/14/2008 10:23 PM, Blogger e4 said...

I'm with you Wendy. Though, if I do lose my job, the 401k might turn into a mortgage pay-down. Or whatever's left of it after penalties and taxes.


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