Ask Dr. LJ: Stocks.

[prog]

I have some money lying around in several separate retirement accounts, from my variously salaried past. Because I work for myself now, and expect to continue doing so for the foreseeable future, I'd like to consolidate these various into one IRA basket.

Right now, my IRA has a couple of CDs in it. I think they've earned maybe $1,000 total over the last six years. Whoopie ding-dong. I don't see them doing much better than that, no matter the weather.

One of my accounts is made entirely of an index fund, and like everyone else's, it's been tanking lately. So I am thinking: let's see if I can't roll that into an IRA, and then reassign all the other retirement money I have into it too. Because, hey, cheap stocks, woo! The market will recover eventually, right?

Is this dumb?

Comments

[530nm330hz.livejournal.com]

That's mostly what I've been doing -- rolling over old 401(k)s into new IRAs and dollar-cost-averaging Spiders and Diamonds. I'm not going to predict where the bottom is, but by the time we're ready to retire the market as a whole will be way up from where they are this year, or else we'll have bigger problems.

The only detail is that for paperwork reasons it's a heck of a lot simpler to keep your 401(k) rollovers separate from your existing traditional and/or Roth IRAs. If you're just buying ETF index funds, the fact that this hampers your ability to pool your money to buy round lots of individual stocks shouldn't be a drawback.

[dictator555.livejournal.com]

Your SO might have better advice than me, having studied finance rather than hugging in school, but here's my two cents anyway.

I think it does make a lot of sense to invest in stocks right now. Your first commenter is right to say that if the market doesn't recover before you retire, maybe we'll all be living in caves hiding from roving bands of ninjas (extrapolation). Either that or you'll retire next year having made billions on one of your brilliant plans and then it won't really matter about the stuff in your IRA.

That said, diversification is still a good thing when you're investing. You're young enough to make riskier investments, but spread the risk around a little!

One other thing. Have you thought about Roth IRA's? They let you balance your tax load. Roth IRA's aren't tax deferred like regular IRA's. It means you pay taxes right away on them, but then you don't have to pay taxes when you take out the money. Naturally, it's more complicated than that, but worth looking in to.

[prog.livejournal.com]

Roth is looking pretty tasty; thank you for the summary. One temptation that would have me go with a traditional IRA is that it would ease my tax burden this year to suddenly have my taxable income reduced by a few thou... but on the other hand, it would feel like I was robbing future-me.

Am planning on talking with the finance-studier about it this evening.

[dictator555.livejournal.com]

Ah, maybe I wasn't clear. A lot of people like to do both Roth and Vanilla IRA's at the same time. It lets you be tricky with the tax stuff. You use the Vanilla to game today's taxes and the Roth to game taxes when you retire. :)

[prog.livejournal.com]

Ohh. Well, that's not a terrible idea. Indeed, I could cram all the money from the didn't-know-I-even-had-it-before-today account into a vanilla for the tax bonus, and still be able to put a little into a Roth before hitting my annual limit. Hm.

I actually two have two IRAs, one of each kind, both with CDs in them... but this is less because I was clever and more because I didn't know what I was doing at the time.

[dougo.livejournal.com]

Are you implying that you studied hugging in school?

[dictator555.livejournal.com]

I'm making fun of my concentration, or rather one of them. Organizational Behavior (OB) was the much-mocked, touchy-feely management concentration, as opposed to finance or operations management. The other concentrations thought we sat around in giant group hugs singing Kumbaya. In reality, OB is way more interesting than finance and it's useful, too. But it didn't really serve to educate me as well about IRAs.

[radtea.livejournal.com]

The only thing you can be sure about market advice is that some of it will be wrong, but for what it's worth I'm still pretty bearish, even with a 20-year time horizon.

The cyclically adjusted price-earnings ratio (CAPE) is about 14 at the moment. The average value is about 15, which means stocks are "cheap", but historically major downturns have seen the number drop to 10 or less, suggesting there is still further to fall.

Blurb on this here:

http://www.businessinsider.com/shiller-stocks-not-yet-cheap-enough-for-me-2009-2

If you're going to buy stocks, Diamonds or other index-tracking units are a good bet. Equity mutual funds tend to reproduce index performance with higher expenses.

Total Cash Position

[taskboy3000.livejournal.com]

I have an IRA and what's left of 401 that I'm not funding.

If I were to get into the market, I'd go we index funds, because when the market recovers, you'll have bought a lot of winners cheap.

If I wanted to make money today, I'd buy an oil index.

[avon.livejournal.com]

(not an expert)

I would suggest you not be investing in individual stocks at this point except with a small section of your money. Certainly GE is looking pretty spiffy, but its hard to tell who is going to succeed and who isn't at this point. Its not even clear what sectors to invest in. If you want to gamble on a few companies go for it, but consider it a gamble.

Instead, dollar cost averaging into index funds may be a better bet. The market will go up again. Not clear when. My brother who is a financial reporter thinks there is still a lot of downside. I have no idea.

Personally, I am sitting with about half of my accounts in cash and money markets right now. I don't know where the bottom is, but it won't happen before Obama gets his act together on the (seemingly endless) bailouts. The other half is in the index funds it was in two years ago, down a lot but, invested long term.