October 1, 2008

Is My 403(b) Safe? - Part 2

Since my previous "Is My 403(b) Safe?" post, there have been hundreds and hundreds of visits to the website and numerous e-mails asking questions - I hope I have helped. This is obviously an important topic, so I decided to add a second section to the blog.

It was not even two weeks ago that I wrote the previous blog discussing 403(b) accounts held at AIG VALIC. In that time, the financial world has continued to change, and on Monday, the Dow had its largest one day point drop in history with 777 points. What I want you to remember now is that this account is for your retirement and the rest of your life, not today.

There are several dozen vendors that have 403(b) accounts, and I have not heard of one going out of business. As for the case of AIG-VALIC, the company could change soon. I am not sure it will, but the VALIC accounts may be a one of those assets that is purchased by another company as AIG is sliced up and sold off. This does not mean that you are losing your account!! It just means that someone else will be the company you do business with. This is just like your bank being bought by another bank - i.e. Wachovia purchased by Citigroup. Your money and accounts do not disappear, but the name will change.

If you have left teaching or the county you started the 403(b) in, by all means please rollover that 403(b) to an IRA. In an IRA, the asset choices are better, the fees lower (annuities charge about 1.35% per year with NO additional services), and the services you can receive for your account make it all worthwhile. If you have not, look at the various options you have.

Going Forward

This is not the time to stop contributing to the account, but it is a good time to look at your investments (tomorrow I will discuss how to value your TRS and 403(b) together). Remember your pension from TRS is guaranteed and should be considered a fixed income security when looking at your overall portfolio. If you are young with 10+ years to retirement, the diversification, time, and your continued contributions will be enough to help you weather any momentary blip. If you are less than 10 years from retirement, then this is something you should really talk to someone about - your goals, feelings, level of risk, etc. I would not transfer money into the fixed annuity side - this just locks it up for the next 4+ years - this is not a good investment. The money market is better than that since you can move it back to the equity investments at any time.

The main thing here is that your account is safe as to the possibility of losing all of your assets based on a company going under. You are invested in mutual funds that are regulated by the SEC that own dozens of companies within each. This does not mean that you cannot lose money, but just as the market goes up sometimes it will go down. The long term benefits though have been tremendous.

A quick glance back at history shows that as we have reached the current "modern era" of investing, the recessions and bear markets have become shorter with bull markets that have become longer. No one knows when the bottom will be, but if you sell out now, you are locking in losses with no potential for gain. The only people that lost money on October 19, 1987 were the people that sold out. The market rebounded over the next 6 months, and the economy and markets had a tremendous bull market rising 650% over the next 21 years.

I cannot say that we will have the same return, but if you look at your pension as the foundation of your retirement and the 403(b) as the "extra" money, you can benefit from being invested. Just stay diversified (have I preached it enough?), get advice (from a professional - not your neighbor), be smart about your money (rollover old 403(b) and 401(k) accounts to an IRA), and you will be much better for it.

If you have any questions or just want to chat, always feel free to e-mail me.

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