Here's a question that came in from a Rule #1 reader a few days ago:
I'm 35 and have 5 young kids, my wife stays at home, and I just finished your book. Thanks for making it so simple — you've given me some confidence that I can actually put my kids through college and still save for our retirement.
I have about $150k in IRAs and a 401k and I'm wondering what to do with that money right now. In one of your previous blog posts you recommended moving into money markets (or some cash equivalent) until you've built up some confidence paper-trading. I asked my broker to sell and he said that I'm invested in 'B' shares which have a CDSC (contingent deferred sales charge) which could be anywhere from 4.5 to 5%. That seems like a lot to give up, yet I don't want to lose money if the bottom drops out.
Should I take the hit and get to cash, or leave it in where it is until I'm ready to start Rule #1 investing? I really want to get this Rule #1 thing right, so I don't want to rush the paper-trading – but in the meantime, I don't want to watch my retirement savings take a nosedive.
I would really appreciate any guidance you can provide. Thanks,
I'm so sorry, man, that your advisors or work admin people
or whoever… stuck you in a deal where they can tag you for a huge
commission like that. And what did they do for the money? Nothing. I
swear, man, the financial services industry is just riddled with scams,
and mutual funds are right there on top of the list. But you are in
there and that would just suck to take that hit. Find out how long
before you can go to cash without a penalty.
Meanwhile, here's how I see the short turn market:
The fed is
easing on raising interest rates, which is good. The market is up, which
is good. The President wants to get a Republican elected in 2008, which
is good. And the flow-through of all the deficit spending is going to
make a lot of earnings statements look great for the next few years.
Which is good.
Bottom line — it's always risky to leave our money in
the hands of other people who don't share our personal interest in it,
but I don't see the market cratering unless there is some disruptive
event — terror, Iraq, Afghanistan, China, N. Korea, Pakistan, India… all are potential sources of a messy event… but short of that,
the market is probably going to float along okay for a while. I think
you have some time.
But I'm glad you are learning this Rule #1 stuff. With your
resources, you could double your nest egg in 5 years and that, at 15% a
year, would let you retire on $4000 a month for the rest of your life.
Keep adding to it out of income and keep it growing without drawing it
down and you could be at a million in ten years. And a lot faster if
you are at the upper end of reasonable rates of return.
Now go play.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.