skip to main |
skip to sidebar
There have been several questions e-mailed to me over the past couple of weeks, and one that continues to be asked is "Are we hitting the 'bottom'"? There is one thing that I have learned from reading history books, economic books and articles, and listening to people... the bottom is never "the bottom" until a few months later.
In October 2002, the market hit "the bottom", but no one knew it until 3-6 months later. The reason is pretty simple to understand but hard to see.
We have all heard the expression "he can't see the forest for the trees", and this is the perfect time for it. It is relevant here because all of us see only what is in front of us. We cannot tell if the market's last drop will be the last one or if we should head for the door.
History
If we look to history, it will tell us some about "bear" markets:
- March 2000 to October 2002 (somewhat long) - Decline of 49%
- August 1987 to December 1987 - Decline of 34%
- January 1973 to October 1974 - Decline of 48%
- November 1968 to May 1970 - Decline of 36%
Our current bear market from October 2007 to present leaves us down about 42% from the high. Thus while we may not be at the ultimate bottom, we are somewhere near it.
Future
The next few months could be choppy in the markets, or there could be the "V" bottom that sometimes happens. The main thing to do is keep your emotions in check and have your allocations at what you feel comfortable with. If you sold some assets (hopefully not all) to cash because you are worried, look to keep it, and slowly put it back in. Going all in may be brilliant or it may not, so the diversification and long term aspect is something to remember when markets start to act crazy in the future.
Let me know if you have any questions.
UPDATE - October 14 - TRS has placed a memo on their website regarding the proposed change. Please read the memo.
On September 24, 2008, the Teachers Retirement System of Georgia (TRS) Board of Trustees held a scheduled meeting with members of various educator advocacy groups (GAE and PAGE) present. During the meeting, the Chief Financial Office in the Governor's Office, Tommy Hills, proposed a change in TRS board policy regarding the semiannual Cost Of Living Adjustment (COLA) for both current and future retirees.
The current policy has been in place since 1969, and it states that TRS “shall give” its members a 1.5% COLA in January and July of every year. The Governor's office wants to change that policy to “may give” a 1.5% COLA in January and July. Under the new plan, the Board of Trustees for TRS would vote each May on changing the COLA and possibly how much the COLA should change. From what Mr. Hills said, this would bring the TRS in line with other Georgia retirement boards.
After a discussion, a vote was taken by the seven members who were present. Three members supported the measure and three opposed it. Acting chairman Russell Hinton broke the tie by voting in favor. The proposed change must be “on the table” for 30 days before any action can be taken. The TRS does not meet in October and the next meeting will be November 19th when they will vote on the proposed change.
Based on this information, I personally wrote a letter to Mr. Jeffrey Ezell (Executive Director of TRS) asking him to have the Board of Trustees not change the current wording of the policy. Please see my letter below - click on it to enlarge it.
To e-mail all of the important individuals (Jeffrey Ezell - Executive Director of TRS, Governor Perdue, Lt. Governor Cagle, Speaker Richardson, Tommy Mills - CFO, Senator Heath, and Representative Maxwell) with just one click - please click here.
Direct Links to additional information on the proposed change:
- From GAE - Georgia Association of Educators - You must be a member.
- From PAGE - Professional Association of Georgia Educators
Sources: GAE, PAGE
In September, the Georgia TRS announced that the employee and employer contribution rates would rise starting July 1, 2009. The new rates will be:
- Employee - 5.25% from the old rate of 5.00%
- Employer - 9.74% from the old rate of 9.28%
While this may be news, the actual contribution change will be very, very small.
For example, under the current rates (5.00% and 9.28%), an educator making $50,000 a year would make contributions of $2,500 (annually), and the employer would contribute $4,640.
Under the new rates (5.25% and 9.74%), an educator making $50,000 a year would make contributions of $2,625 (annually) - only $125 more. This would have a net effect on your paycheck of about $7.30 per MONTH. The employer will have contributions of $4,870 - $230 more.
The reason for the change goes back to the performance of the stock market since 2001. TRS has an actuary determine the liabilities versus assets of the plan and calculate the difference that must be made up. The raise in contributions will help bring the plan back in line.
If you wish to know more, please read the letter from the TRS Executive Director Jeffrey L. Ezell by clicking here.
Next on the agenda... writing letters about the proposed TRS Cost of Living Adjustment (COLA) change...
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.
