OT - Dow plunges 1,175 - worst point decline in history

[Ozz]

Originally Posted by seanile

^thanks for your valuable perspective.
i'm still young, 28, so i'm keeping my various index funds and ETFs in-place for the most part, but am moving toward a 10% cash and 10% bond mix with the idea that i will use that to doubledown on my already automated contributions as things get bad next time around, or use them as an auxiliary emergency fund.

Don't forget to max out your tax deferred accts (IRA, 401(k)) too....time is your friend.

[seanile]

Originally Posted by Ozz

Don't forget to max out your tax deferred accts (IRA, 401(k)) too....time is your friend.

absolutely, yea, my baseline is trying to get as far into that as possible. however, i am maxing a roth ira in favor of my 401k because a) there is an income threshhold that you are disallowed from contributing afterward, which i am not near, but optimistic that maybe someday i will be, b) because there is an allowance for $10k of gains to be used for a first home purchase without penalty, and c) so that when im retired i can offset the amount of taxable 401k withdrawals with the already taxed roth money, and thus be able to stay in a lower bracket while withdrawing an effectively higher "income". this last point is important to me because i'm expecting a great deal of tax increases to make up for this asinine deficit/debt dumpster fire we're in.
huzzah!

[Ozz]

Originally Posted by seanile

absolutely, yea, my baseline is trying to get as far into that as possible. however, i am maxing a roth ira in favor of my 401k because a) there is an income threshhold that you are disallowed from contributing afterward, which i am not near, but optimistic that maybe someday i will be, b) because there is an allowance for $10k of gains to be used for a first home purchase without penalty, and c) so that when im retired i can offset the amount of taxable 401k withdrawals with the already taxed roth money, and thus be able to stay in a lower bracket while withdrawing an effectively higher "income". this last point is important to me because i'm expecting a great deal of tax increases to make up for this asinine deficit/debt dumpster fire we're in.
huzzah!

Sounds like you have a plan!

Congrats....you're better off than ~90% of the folks out there.

Didn't mean to sound preachy on my post....just forgot the "smiley face"..

Cheers.

[echappist]

Originally Posted by veloduffer

One needs to assess their financial situation in context of their life cycle - in retirement, near retirement, etc.

Recent market volatility is a good reminder that equities are the most volatile investments - the S&P 500 lost 39% in 2008. Many folks never recovered from that and had much less in savings.

Valuations, markets and business models change, so stocks don't always bounce back. With every industry currently undergoing disruption, it's not as easy to just buy & hold -- today's blue chip may be tomorrow's goner.

Markets and economy are currently in classic late cycle conditions.
- Fed tightening
- Debt leverage (corporate, govt, consumer) are at record highs; easy credit and lots of LBO activity; valuations very high (debt/EBITDA multiples, P/E)
- Earnings near or past peak
- Savings are extremely low (little or no rainy day funds or retirement funds)
- Fiscal deficit is extremely high and climbing

Given the bubble in the debt market (leveraged loans, BBB bonds), the next recession is likely to be corporate-led, which hasn't happened since 1989-90. The Financial Crisis was led by housing and financial sector; even then corporate defaults peaked at 14% and unemployment was about 10%. This next recession could be much worse, plus longer and deeper.

There are concerns on what can lead the US out of the next recession - given the limited ability to provide fiscal and monetary stimulus. If China were also to go into recession, the world's two largest economies would bring the global economy down. Deflation could be a serious issue.

GDP growth (in real terms) is expected to decline over the next couple of years until about 1.8% in 2021 and is their expected long term average. This is caused for one simple reason - labor productivity which will decline simply because the large amount of boomers retiring and leaving the labor force. The low retirement savings and many will only have Social Security as their sole retirement income, there will be a substantial drag on the economy.

GDP is also constrained as Millenials and Gen Z have student debt and are forming families and buying houses much later in life. And those without college degrees will be stuck in low-paying, low skill jobs.

As a strategist for institutional asset management, we are de-risking our portfolios. Since most of my friends and family are near retirement and focusing on capital preservation, I advise them to move out of equities and into short-term bonds (while interest rates are rising). Winter is coming...

always appreciated your perspective on all these. Unlikely the chartists who go try to divine the future purely from up and down, you actually took the time to analyze underlying issues driving the economy.

[seanile]

Originally Posted by Ozz

Sounds like you have a plan!

Congrats....you're better off than ~90% of the folks out there.

Didn't mean to sound preachy on my post....just forgot the "smiley face"..

Cheers.

not taken as preachy at all! i'm definitely an exception to the rule for people my age since i'm looking to save as much as i can and retire as early as possible.
also happy to learn from others' strategies and see what has worked for you/them.

[echappist]

Originally Posted by seanile

absolutely, yea, my baseline is trying to get as far into that as possible. however, i am maxing a roth ira in favor of my 401k because a) there is an income threshhold that you are disallowed from contributing afterward, which i am not near, but optimistic that maybe someday i will be, b) because there is an allowance for $10k of gains to be used for a first home purchase without penalty, and c) so that when im retired i can offset the amount of taxable 401k withdrawals with the already taxed roth money, and thus be able to stay in a lower bracket while withdrawing an effectively higher "income". this last point is important to me because i'm expecting a great deal of tax increases to make up for this asinine deficit/debt dumpster fire we're in.
huzzah!

something to think about: by maxing out your 401(k), the tax savings may be able to fund ~75-80% of your Roth IRA.

Assume income of 105k after FICA taxes (doing this b/c it removes effect of going to lower marginal rate), analyze the following:

-maxing 401(k) to 18.5k means tax saving of 4.44k, which is $1060 short of maximal annual Roth contribution. In effect, $18.5k of pre-tax money gives you: $18.5k of 401(k) and $4.44k to Roth IRA. In total, $18,500 of pre-tax gives you $18,500 of 401(k) and $4,440 of Roth IRA.
-maxing Roth IRA of 5.5k from $18,500 pre-tax money, whatever left going to 401(k). If my math is correct, you can do this by contributing $16,473 to
401(k) and the remaining $2,027 to Roth. That $2,027 becomes $1540 after tax, while the tax benefit of $16,473 is $3953, for total of ~$5,500.

However, compare the following,
-In the first case, you have $18,500 in 401(k) and $4,440 in Roth; in the second case, $16473 and $5,500. The first case has $2027 more in pre-tax money and $1060 less in post-tax. Except, $2027 pre-tax is worth more than $1060 post-tax at the 24% rate, as the former is worth $1540.

That said, you are right that Roth offers greater flexibility, as not only are you allowed $11k in gains for home purchase, you are also allowed to take out your contributions without penalty after five years.

[veloduffer]

Besides IRAs and 401k accounts, an important savings vehicle that may be overlooked is the Health Savings Account if you're in a high-deductible health insurance plan.

This has triple tax savings: pre-tax contributions, tax free earnings and tax-free withdrawals (for qualified medical/health expenses). I contribute the maximum and plan to use it as a long-term care/medicare gap policy when I'm retired.

One of the analyses that we're revising is the sustainability of the US government with regards to social security, Medicare, pensions and student debt (this could be a large write-off if folks can't repay). The govt safety net is very thin and should not be counted on to fund your future needs. It is uncertain how the govt will handle Social Security and Medicare when the trust funds are depleted (2033 and 2026, respectively and assuming no recession in the mean time). Either benefits need to be trimmed and/or taxes will need to increase.

[Ozz]

Originally Posted by veloduffer

Besides IRAs and 401k accounts, an important savings vehicle that may be overlooked is the Health Savings Account if you're in a high-deductible health insurance plan.

This has triple tax savings: pre-tax contributions, tax free earnings and tax-free withdrawals (for qualified medical/health expenses). I contribute the maximum and plan to use it as a long-term care/medicare gap policy when I'm retired.

One of the analyses that we're revising is the sustainability of the US government with regards to social security, Medicare, pensions and student debt (this could be a large write-off if folks can't repay). The govt safety net is very thin and should not be counted on to fund your future needs. It is uncertain how the govt will handle Social Security and Medicare when the trust funds are depleted (2033 and 2026, respectively and assuming no recession in the mean time). Either benefits need to be trimmed and/or taxes will need to increase.

Re: HSA - yes, forgot about that...I have one, but cannot contribute because current employer does not offer high deductible plan....my wife has one, and contributes to the "family max" since the kids are on her health insurance.

It is ridiculous (but not surprising) Social Security has not been dealt with already....it is just a simple math problem. It get complicated only because of the huge (voting) population who receiving or soon to receive it.

Raise taxes (rate or tax all wages)
Raise full benefits age - just give affected group 20+ yrs to plan
Reduce payments - again, give affected group time to plan
Allow individuals to "opt out" - a la Warren Buffet

just sayin'

[kppolich]

Alot of good stuff above. Basically,

Reduce taxable income with 401k/etc, fund ROTH vehicles, fund HSA if you can, and get a high yield checking account or cash back credit card if you can afford to pay it off monthly.

Pretty much live within your means, but also remember to live life. You can't spend your whole life saving and scraping by, do what makes you happy along the way. You don't want to be 80 and rich and never have any fun. Enjoy it along the way.

[jlwdm]

Amazon up almost 118 during the regular session and giving it all away after hours.

Jeff

[pbarry]

Originally Posted by jlwdm

Amazon up almost 118 during the regular session and giving it all away after hours.

Jeff

What a roller coaster. Amazing that profitability takes a backseat to revenue.

[echappist]

Originally Posted by pbarry

What a roller coaster. Amazing that profitability takes a backseat to revenue.

Alas the world in which we live.

[jlwdm]

Originally Posted by pbarry

What a roller coaster. Amazing that profitability takes a backseat to revenue.

For Amazon it has historically been revenue not profitability. Guidance for the 4th quarter was down - which is a big issue.

Jeff

[54ny77]

it's kinda laughable.

the headlines say earning disappoint, shares tanking.

everything is still up staggering % and $'s in absolute terms.

but when it's trading at such a frothy multiple, it doesn't take much to push momentum downward.

their "disappointing" earnings growth rate is still the envy of many a corporation.

Originally Posted by jlwdm

For Amazon it has historically been revenue not profitability. Guidance for the 4th quarter was down - which is a big issue.

Jeff

[pbarry]

Originally Posted by jlwdm

For Amazon it has historically been revenue not profitability. Guidance for the 4th quarter was down - which is a big issue.

Jeff

Yes, you're right, there are a few areas that dinged them. The jauggernaut slowed a hair.

It does seem that earnings reports in the last two months, if they are not absolutely stellar, result in over reactions from investors, especially in retail. True, or business as usual?