Agony Over My 401k Portfolio

I am agonizing, this morning, over what to do with my 401k portfolio.

I rely on the assets in my 401k to supplement my retirement income to cover my mortgage and other fixed monthly expenses. The 401k assets are, however, plunging in value. The decreased value means that I may lose my home within a few years AND be totally broke. This personal disaster is not, I am sure, unique to me. Houses just don't sell in my geographic area (Northeast); so, moving to reduce expenses is not an option. Besides, selling my home at an extreme loss seems like a poor idea.

How is your asset management going? Are you on a fixed income and anxious over the drop in value of your retirement funds? Do houses sell in your area?

Surely, my anxiety over this problem is not unique. Could we somehow have an anxiety level contest? How could we measure anxiety on the Web?

My portfolio is in the "low risk" category of the company I deal with. Low risk has turned out to mean an average drop in value of about 65% since the start of the economic free fall. The assets are primarily stocks and bonds that are subject to market fluctuations – meaning drop.

Keeping the assets spread across several funds provides some protection from decreases in value. More importantly, diversity also offers opportunity for growth in a market that is not running scared. A market that can sustain a surge in value.

My preferred safety option right now is to transfer at least 50% of my assets to a cash fund. Cash provides no opportunity for growth and no risk of a decrease in value. A simple cash fund allocation would decrease my anxiety over catastrophic loss in value of stocks and bonds. I probably will choose to put some of the cash into an account that is based on certificates of deposits (CD's). This approach makes a lot of sense to me.

After all, I can calculate how much liqud cash I need per year (or any other period) to cover my fixed monthly living costs. That implies I can buy CD's with maturity dates that make cash available when I need it for expenses.

I would like to hear what you are doing to protect your assets. Are you moving assets to cash as a safety net? Are you less risk averse than me? Do you rely on retirement funds for monthly expenses? How is that working out for you?

"Socialism or Free Market: False Dichotomy"

The article “The G-20 Summit: A Vote of Confidence for Capitalism?” from Time magazine on November 14, 2008 uses a false dichotomy to have the reader choose between capitalism and socialism. The term of choice for our current economic system is free market. Free market prices are set by the mutual agreement of buyers and sellers. Prices are not affected by false or misleading information OR the intervention of government. In a real free market. We do not have a real free market.

There are also regulated markets. Prices are controlled by buyers, sellers and sometimes the government, in extreme cases. Government does its best to ensure that false and misleading information is eliminated from market transactions. Government, with market cooperation, simplifies documentation, eliminates gambles that risk the wealth of the nation and clarifies the more ordinary risks faced by any market participant.

A mixed market falls somewhere in between free and highly regulated. Prices are set by buyer and seller without government involvement. Government regulation OR industry self-regulation fills the same “truth in selling” role as it does in a regulated market. Mixed markets are simply a more relaxed form of regulated market. The current system in the United States is a mixed market.

So called “free marketeers” like President Bush would have us believe that false, misleading and purposefully obscure information played no role in the collapse of our economy. Not so.

A host of obscure gambling schemes, such as hedge funds, destroyed our economy in, to say the least, a criminally negligent way. It is time that Congress and the public reject the unfettered “free market” idea and embrace, more fully, a mixed market concept that eliminates false, misleading, and purposefully obscure information. This does not mean socialism.

Embracing a mixed market means eliminating the recklessness that has hurt all of us. It does not impose undue restriction on those who want to risk money on certain transparent types of market gambles. A mixed market with much improved information, understanding, morality and regulation means protection for all of us.

Is there a "Force for Good"?

Sarah Palin recently told a Florida audience that we should be a “...force for good..”. Wow, a 'force for good'. Imagine that. Did this forceful approach work with any of your kids? How about your neighbors? Your in-laws? Saddle up the Christian crusaders and ride into Jerusalem, Iraq, Iran, Saudi Arabia and any place that is 'bad' and undemocratic. Force them to be good.

Personally, I do not believe the 'force for good' metaphor offers hope to most Americans or to the world. I do so hope that Palin was using the term metaphorically. I believe that my country was and can be again a shining beacon of hope for the oppressed of the world. We can can be again looked to for examples of democracy in action. We can be again looked to as the place that says:

give us your poor, your tired, your huddled masses longing to be free

rather than surrender and accept democracy or else. We can do this by talking to our enemies. We can do this by building schools that teach the three RRR's and honest history; history that is not centered on one religion or another.

Get off it Republicans, selling democracy to the rest of the world has to be by example, not at the point of a sword. Force is bad. Discussion and example are good. Discussion and example are and always have been the only real 'force for good' in the world

My Mortgage

Thanks, but no thanks.

That is what I should have told the high pressure mortgage lender when buying a new home two years ago. I should have known then that the payments were more than I could afford over the long run. The high-pressure selling tactics and earnest assurances that the mortgage was right for me overcame me. I took the mortgage.

Unlike millions of other homeowners, however, I will keep my home. I am lucky not to have gotten in over my head. Lack of understanding did not get me into deep financial trouble.

Lack of understanding, however, just got those same mortgage lenders who pressured me an enormous bailout for the loans they sold people who could not afford them. "Oh," Wall St. pleaded, "we just didn't understand what we were doing!" So, Bernanke, Paulson, Bush and the entire Congress feel for this pleading of ignorance and paid for their mistake.

But what about the poor homeowners? Where will they go? How can the families recover from the high-pressure sales tactics of unscrupulous mortgage lenders who should not have qualified them for loans? Well, these poor people are left with no help. They are like the victims of a the financial equivalent of Katrina: alone, uncared for and living in tents or cardboard shelters.

Why didn't Congress act to turn these "bad mortgages" back over to homeowners on terms they could afford? Put people back in their homes, Bernanke and company, not out on the street. Why don't we all march on Wall St. and take back our lives from those who control them at such a cost to us?