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10,000! I have missed you!

The Dow Jones Industrial Average hit 10,000 for the first time since October 2008.  But then, it hit 10,000 on its way down to 5800.  I do expect some sort of sell-off soon as investors lock in some profits.

Wall Street still has Main Street Scammed

What I am about to say may certainly generate some backlash from a few of my readers, but here I go…

I believe that Wall Street has purposely brainwashed Americans for at least the past 20 years into investing money in retirement plans – 401k plans, IRAs, etc… Now your first reaction is naturally, “Well, what’s wrong with that?” And my answer to you is nothing, unless you look at the whole equasion.

First off, lets go back to when I was young.  I had no money, could hardly pay the rent, but I was strongly encouraged to put money away in a 401k.  The company matched up to 50% of my investment, which would be vested over a 5 year period.  So that’s just like an instant 50% return.  You’d be dumb not to do that!  I mean, a 25 year old that saves a $100 or $200 per month can be a millionaire at retirement.  I know the Rule of 72.  I understand it.  If you don’t, Let Me Google That For You.

So what’s so bad about all of this???

1. People should first be brainwashed to save an emergency fund.  Maybe even more than that.  Why in the world would you want teach young kids to save in a retirement plan if they have no money saved in the first place?  As soon as something happens and they need money, they are going to raid their retirement plan and pay a 10% penalty.  Dumb!  This is not a strategy, this is a poor backup plan.
2. Young people need to learn the discipline of saving.  A savings account is designed for this, not mutual funds wrapped beneath a 401k.
3. There are other things in life other than retirement to save for.  A house, car, etc…  Retirement is not the only thing to save for.  You’ve got a life to live.  Family, vacations, etc…  You may never even make it to 59 1/2!!!
4. People are conditioned to save for retirement but never encouraged to save for the short and medium term.  Most people I know don’t have any money saved, other than retirement.  This is a disaster waiting to happen.
5. The taxable vs. non-taxable comparison.  We’ve all seen the graphs.  Basically, they show how investing in a retirement plan yields you more money in the end because it grows tax-deferred.  And that’s it true, if you ignore reality.  This is one of the biggest lies that we have all been fed! Let me explain.  First of all, many people receive tax refunds.  As you invest in a “taxable” investment, you do not take out of your non-retirement investments to “pay for” the tax on the dividends and appreciation you have earned.  Especially if you are getting an income tax refund.  In fact, this money can grow for many years before the investor will even need to withdraw money from the account to pay for taxes.  And as the investor gets older, he most likely will buy a house, leading to the mortgage interest deduction.  A larger refund.  Still no withdraws from the taxable fund.  Eventually as the money compounds and the tax-refund dwindles away, the investor may need to take money from the fund to pay taxes.  But it is not at year one as the graphs imply.  It more likely is many years later.

So that’s great Len, where’s the scam???

The scam is this.  The mutual funds have a great interest in you locking your money up retirement plans.  You will not take it all out, even if you need it!  Which keeps more money under their management, which means more management fees, which means and ever increasing assets under management which leads to an enormous amount of steady income!  It’s all about them!  This is why they do not advertise non-retirement investments much.  They want you to lock up your money with them, under duress of a 10% penalty!

The government likes this too, because they know they can get an extra 10% penalty tax from many people in Middle America, because they do not have sufficient non-retirement savings!  This entire thing is a scam for Middle America and it does NOT have the regular guy’s interest at heart.  You need to start thinking for yourself and not be easily convinced to do what big corporate America and the government wants you to do.

I have not saved in a 401k for years.  And I have no intention to ever do so again.  And I have saved more in non-retirement taxable investments than ever!  And I have control.

Some may say that a 401k/IRA is good because it’s a “forced savings.”  Bull.  This is a BS excuse.  This reminds me of the same thing insurance agents used to say to people as they sold whole-life insurance to everyone that had a pulse.  A “forced investment.”  Sorry folks, saving requires discipline.  Regardless of whether or not it is in a retirement plan or an insurance policy.  A weak or desperate person will always stop saving.  It takes cold, hard discipline.  Oh, and go ask your local millionaires about their 401k or IRAs.  Oh wait, they don’t qualify.  They make too much money.  Hmmmm…  If it was good for them, believe me, it would be legal.

In closing, I’m not saying that you should never to put money in retirement plans, although I will no longer.  I do say this…  If you are going to, make sure you have your non-retirement savings, plus your emergency fund before you invest a dime in a restricting retirement plan.  Then, only invest up to the amount your employer matches.  And while you are investing in retirement, do not make that your only or primary investment.  You should make sure you invest or save in non-retirement monthly as well.   Forget the theories and fuzzy math and fancy graphs.  Believe me, I used to sell retirement plans…

Do you still have the 'buy and hold' mentality??

In the past 52 weeks, here is how much the following stocks have declined:

Sirius: -96.41%
Apple: -54%
Citigroup: -95.47%
AT&T: -43%
GE: -80%
ExxonMobil: -32%
GM: -91.5%
Pfizer: -48%
Ebay: -69.26%
Yamana Gold: -60.72%
Microsoft: -50.63%
John Deere: -74%
Monsanto: -51%
Altria: -80%

Do you still think it’s a good idea to invest in your 401k right now?  Do you still believe in the flawed concept of “buy and hold“?  Use your head, not your heart.  Just because you are invested does not guarantee that your investments will go up.  Ever.  It’s your money.  You have no business investing in anything if you are going to just have blind faith and just let your money sit while you make no decisions.  I’ve been saying this for a long time now.  Buy and hold is not a winning strategy.  Buy and hold is ignorant and may cost you dearly.

If you want to invest but are too scared about making the wrong decisions, you have options:

• Hire a Registered Investment Advisor (RIA) – a non-commissioned professional that will personally manage your investments
• Call your 401k or investment company and discuss making changes.  Fidelity, Schwab, Ameritrade, etc… all have investment professionals that are just a phone call away.
• Get involved in your finances.  Learn, read, ask questions.
• Don’t be afraid to make changes in your strategy at least every quarter.  You must have some type of involvement.  After all, it’s your money.  Don’t play the “I don’t know anything about investing” card.

For your additional reading enjoyment:

Rules Are There For A Reason 2/25/2009

Sell your stocks and put your money in the bank! 9/17/2008

The Short Sale Uptick Rule Has Been Abolished By The SEC – What This Means to YOU! 8/10/2007

Tax-Deferred Investments 2/25/2007

Investing Basics 8/26/2005

The Retirement Craze 7/11/2005

Rules Are There For A Reason

Your mom told you that, didn’t she? And you didn’t understand why at the time, but eventually, over time, you realized that she was right, and she had your best interest in mind.  We are a nation of rules, and they are supposed to protect us.  In fact, many of the rules that are in place in the financial world are really there to protect you.  Well, one of those rules that protected you and I has been destroying America.  It’s too boring to talk about on CNN or NBC. But you cannot ignore its wrath.

I said back in August 2007 that abolishing the SEC Uptick Rule was bad news.  And you can see that I was right.  At that time, who could have imagined that it would have helped to destroy 50% of the stock market?  I knew it was bad, but I had no idea that it could get like this.  You can blame it all on the housing bubble or the credit crunch or predatory lenders if you want.  When the SEC abolished this rule, it only took a couple of months before it started to crush the market.  Look at the chart:

You can see from the chart that the uptrend of the market leveled out at the end of May 2007 when the uptick rule was abolished, and by October 2007 the market began its free fall.   You don’t need to have your MBA from Wharton to put 2 and 2 together on this one.  Our government sold out to the market makers and they may have helped contribute to the greatest economic depression that this country has ever seen.

There was no way to avoid the consequences of bad mortgages and poor economic policy.  But I sincerely believe that it would have not been this bad had this rule remained in effect.  You can blame the hedge funds, market makers, and, well, the plain rich investors, who had enough capital to drive down companies with their enormous capital and expertise in market manipulation.  What a total shame.  Our government has sold out.  But this probably isn’t any news to you…

But perhaps there is some hope, although it’s too late to recover from the damage that has already been done.  From Marketwatch.com article:

Bernanke: Uptick rule might have been useful during crisis

WASHINGTON (MarketWatch) — Federal Reserve board chairman Ben Bernanke seemed to give tacit support on Wednesday to restoration of federal rules that don’t allow short-selling while a stock is declining. In a question-and-answer session with the House Financial Services committee, Bernanke said that the rule “may have had some benefit” during the current crisis. Mary Schapiro, the new chief of the Securities and Exchange Commission, told the New York Times this week that she’s thinking about reinstating the rule. The SEC eliminated the rule in 2007. It had been in place since the market crash in 1929. It stated that short sale had to take place at a price higher than the price of the previous trade. Robert Brusca, chief economist at FAO Economics, said too many people on Wall Street were able to make profits from the pessimism in markets and restoration of the up-tick rule was needed.

May have had some benefit????? What in the hell is this guy smoking??

Top FDIC Insured Savings Accounts

FDIC is all the buzz these days.  With the collapse of the economy, you probably want to move at least some of your money to an FDIC-insured savings account.  Here are some of the top-paying banks where you can open a savings account online:

Dollar Savings Direct (Emigrant Bank) Type: Savings    Yield: 3.75%
Flagstar Bank Type: Money Market    Yield: 3.65%
Nationwide Bank Type: Money Market   Yield: 3.52%
HSBC Direct Type: Savings    Yield: 3.25%
ING Direct Type: Savings   Yield: 3.00%

More banks and info at bankrate.com.

Now this is not going to make you rich, but the returns are much better than your local bank.  It’s all about capital preservation now.  You may as well take advantage of these high-yield paying banks.  If you don’t need the money in the short-term, you can get CDs for a variety of lengths.  They are generally paying up to 1% more than the savings and money market funds.

I chose Nationwide Bank because I have used their mortgage company and insurance company several times.  Plus they had good reviews.  I also opened an HSBC Direct account but I haven’t funded it yet.

The FDIC now insures up to $250,000 per depositer per bank up until December 2009.  This now includes money market funds sold by member banks.  View the press release on the FDIC’s website.