End of June: allocating pension funds

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It's nearly the end of 2Q1999. Let's assume that many forum readers have retirement/pensions funds which cannot be withdrawn without serious penalty.

Given this assumption, what are the best options for allocating one's funds? Yes, I know that withdrawal/cash-out might be most prudent, but given the penalty and thus an absolutely guaranteed loss, it would seem to come under the heading of "last ditch" (September most likely, just before the notoriously unstable start of 4Q).

Your comments welcomed.

-- Mac (sneak@lurk.hid), June 11, 1999


I stopped making new contributions, and moved from very aggressive index funds to money market and treasury funds.

-- Brooks (brooksbie@hotmail.com), June 11, 1999.

The worst part of removing money out of the fund is not the tax hit but rather the the fact that you can't get it back in. Do like Mac says. It's like sitting on the bench to catch your breath in a basketball game -- you will score more points in the long run.

-- Dave (aaa@aaa.com), June 11, 1999.

I wish my husband and I could move HIS 401K into something other than the stock market. 2 months ago, we inquired about his IDS funds. The

-- luann (flataufm@hutchtel.net), June 11, 1999.

Pressed the wrong button. Sorry! We can't move my husbands 401K into anything BUT the stock market. We can only transfer the funds into other stock market funds, if we don't want to incur the penalties. I hate the thought of withdrawing the funds; without incurring the penalty, I'm not sure what to do. We are thinking of spreading out the risk over 8 different areas we can invest in, but that still leaves the money at very high risk. Does anyone have any suggestions? For us also, if we withdraw the funds, it would come prior to the 4th quarter.

-- luann (flataufm@hutchtel.net), June 11, 1999.

Move into the money market and take out a loan against the total. Some plans will allow you to borrow against your 401(k) , usually up to 50% of the total value. You will not be able to make additional contributions for a period of time, but you will pay no penalties, only interest. If things tank, well, it's really money you owe yourself, and you'll be in the most conservative position possible. If they don't, all you lose is the interest and a little contributing time in the future. And, if you simply hold the cash, you can repay the loan after the first with no penalty. This may or may not be right for everyone, and those closer to retirement might want to think it through very thoroughly first.

-- ariZONEa (long_gone@retirement.com), June 11, 1999.

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=0003uU this might work for some. You will find that most pension handlers will be dumber than a mud fence on gold. My very sophiticated experianced broker told me that the metals specialist in their firm (Everen Sec.) said that Kruggerands were more expensive than American eagles! Needless to say he never even heard of an Austrian 100 Corona.

-- Ken Seger (kenseger@earthlink.net), June 12, 1999.

MAC: In my opinion, "ariZONEa" gives an interesting perspective. If you are worried about the loss of your money due to potential financial turmoil, then one of the least costliest ways, regardless of which of the many ways events may turn, is to first take a loan for the maximum amount allowed from your 401K. As ariZONEa indicates, as is the case with my 401K, up to 50% of its current value. That transaction will allow for the following potential benefit/risks:

You will now have "liquidated" 50% of your fund and can do with that portion of your money as you wish, without any penalties associated with "early withdrawal." Depending on your perspective, you will now have to begin paying the note on the loan to yourself. If you fail to properly make the payments for the repayment of the loan, and if you your plan has the same penalties as mine, the loan will be repaid using the remainder of the balance in your fund, with appropriate penalties assessed by the Gov for "early withdrawal," plus typical charges associated with your "default." All in all a costly series of transactions in the event of your failure to repay. On the other hand, if you expect anything close to a "10,"

The "bottom line" is that if you repay the loan according to its terms, you will have obtained the use of half of your money while "only" incurring the costs of a) the fees/interest involved, b) and the loss of whatever interest/gains you were receiving from the fund, had your money remained where it was previously invested.

What you then do with the money that you loaned yourself, coupled with what transpires during the period of the loan, will determine if you were wise or foolish - from strictly a financial perspective. One thing you might do is open a simple savings account. This will allow you to take advantage of FDIC insurance of up to $100,000 - something to which investment funds cannot avail themselves. The interest rate is pitifully low, but if your purpose was security for your capital you would be doing the most prudent thing available.

If the above option is not available to you then my advice, given the apparent limitations of the funds into which your husband and you can invest, would be to move all of my money into a US treasury account It will be the most "secure" place that "traditionally invested" capital can be, short of being able to have the FDIC insure it.

Try to maintain this context: If anything approaching a "10" is in your planning, then none - I mean none of the "traditional" concerns with respect to capital preservation/growth should even be contemplated. There is simply no good strategy except to obtain items of utility, utilizing everything with which you might obtain them. On the other hand, limited economic uncertainty means potential growth/loss of your capital. Seek security first, then opportunity - the classic strategy for most of us.

For myself, I have not touched any of my financial assets, although I have moved almost all of my money out of the market and into money market funds. The only exception is that I have purchased shares in a precious metal fund with a portion of my cash - so far a dismal decision. I remain optimistic however.

Should our worst fears materialize, all such advice will have seemed foolish. Should they not materialize, the usual dilemmas with respect to financial decisions will remain as they have since humans first produced a surplus

Hopefully I have helped.

With respect,

-- Dave Walden (wprop@concentric.net), June 12, 1999.

THANKS for the help for the question on the 401K, it was MUCH appreciated! :^)

-- luann (flataufm@hutchtel.net), June 12, 1999.

My sincere thanks to all who contributed, and especially AriZONEa and Dave Walden. The suggestions re a shift to money market and then a "loan-to-myself" are excellent; I have recently been researching funding sources for additional improvements/preps for our house (specifically alternative power and heat) and did not want to take on any more house-debt (equity may become, shall we say, "problematic" if things go seriously sideways.)

Again, many, many thanks.

Reminder to all: tomorrow (06/15/1999) is T-200...

-- Mac (sneak@lurk.hid), June 14, 1999.

Spouse just moved all out of 401k today after talking to 401 advisor. Advisor was concerned also abt y2k and stock market collapse. It was moved to a retirement acct. Safe from stock market..don't know how good it will be if banks close though. Was the best we could do with this 401K program.

-- Moore Dinty moore (not@thistime.com), June 14, 1999.

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