October 7, 2008

403(b) Safety - Helping You Sleep at Night

I have been e-mailed several questions over the last few days, and one of the main points that everyone wants to know is "Is my 403(b) safe?"

While I have written about the safety of the 403(b) from a bankruptcy point of view (specifically AIG VALIC), I have not written anything specific about the actual account and its investments. What I have tried to preach in this blog is simply diversification.

This market is actually somewhat the exception and not the rule. During any "bear" market, there are usually areas in the market that are down, and there are some that are up. Diversification usually allows you to make sure to grab some of all of the areas to help you in an up and down market. The 3rd quarter was different because every area of the market was down... even bonds.

The main thing here is that diversification is your friend because most of you do not watch the market every single day, but as the saying goes, you need to be able to sleep at night. For example, a few years ago, I had a couple of clients call me that had several million dollars invested, but for them, safety was the $100,000 in cash in the money market that I held. This "let them sleep at night."

A 403(b) account is just like any other account that invests in the stock market. You CAN lose money, but the issue is not to make your account 100% safe, but to invest it for the long term. At the same time, if you need to feel better and have some in cash "to sleep at night," then by all means, go ahead. The market and economy do look rough in here, and a 20% cash position or so in the money market seems to be a decent place to hide. I would not use the fixed annuity since it locks up your money. Everyone is different though, so you need to do some research, and understand your options rather than just trying to jump on something hot.

If you go to cash in the entire account and wait for the market to get better, then you may miss a golden opportunity.

I will close this post with several quotes from the "Oracle of Omaha" Warren Buffett. Remember, he just bought stakes in Goldman Sachs and GE. He is not looking for today or tomorrow, but for years from now... He has billions though, so you want some safety (cash in the account) and do not go overboard.

"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."

"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

"You only have to do a very few things right in your life so long as you don't do too many things wrong."

Good luck, and keep e-mailing me with questions.

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