On January 29th we joined my husbands "Thrift Savings Plan" which is similar to a 401 account for retirement. We had a choice of three options: savings, mutual fund, or high risk stock. We chose "high risk" even though we are older.

After reading the entry on this page that said something like, "Dear Taz, what happens to the money from a stock once it crashes?" The answers made me really concerned that this is the wrong time to invest because stocks are destined to take a plunge. We are allowed to change our option temporarily once a month and permanently twice a year. I sure would love to get some cyber advice.

Thanks, Anne

-- Anne in TN (imnot@work.com), February 08, 2000

Answers

It would be good to know the definition of "high risk stock". There are those who would argue that the stocks of companies specializing in raw materials production, for instance, could be seen as high risk. There is, of course, the potential to be vested in high-flying tech stocks which are vulnerable to any NASDAQ break. There are also penny stocks -- the mother of all high risk. It would be good to know what sorts of high risk stocks they're talking about, at this point, it's just too general to make any assumptions about.

-- (cashtradr@aol.com), February 08, 2000.

Get your money out entirely or you'll never get it out at all. If we hit another depression, even your cash will be worthless, so your best bet is to buy things you can use for barter in the event of a catastrophe.

-- (ronR@horest.org), February 08, 2000.

Dear Cashtrader, Thanks to your question, I called the "Thrift Savings Plan" representative and asked if they had a brochure describing the high risk stocks. Indeed they do and are sending it out to me today. She is also sending a form to fill out allowing me to change from the "high risk" plan to the general "savings plan" if I want to.

I appreciate yours and "ronR's answers. Thanks. You have both already helped.

Anne

-- Anne in TN (imnot@work.com), February 08, 2000.

I am recently of the same quandry.

I think I've rationalized myself to a position.

Previously, most of my savings from my company's 401K I have had in a "Growth Fund" which is a fund which is made up of "Service Oriented Stocks." This fund has performed very well over the last eight or nine years I have owned it but recently (in the last year or so) has gone a bit "flat." Previously it seems pegged somewhat to the NYSE: now it is underperforming DJIA and S&P500. I decided that the current 9 percent annual rate of return was a bit low. (It's not unusual for a fund to go a bit flat once it "matures.")

I opted to convert a good portion of the "Growth Fund" to something a bit closer to a "tech fund." This fund instead follows more closely NASDAQ and has had a rather spectacular 80 percent return for the last year.

I have examined the underlying stocks of this fund and they're all the "blue chip" of their respective markets, and fairly light in the "internet" sector.

Now while it's true that should the market "tank," NASDAQ will likely get hit harder than most because of it's abundance of internet related newcomers. However, the "blue chips" will survive just because they are the leaders in their field. (Remember that perhaps a third of NASDAQ would be considered "start up" companies by any NYSE evaluation or measure.)

Now I am in a position in my life where I can afford to wait a while should a "market correction" occur (as it likely will.) From what you say, you may not be in such a position.

I think the key to your question is to do your homework on what you are buying, evaluate in your own mind the possibility of a "tanking" in the near or far term and decide if you can "ride it out.", and then make your best shot.

Of course the best thing is to "diversify" if you can. (Some company sponsored 401K's limit rather severely the different funds you can invest in.)

Also, with this philosophy, keep in mind if the market takes a "tanking," we'll all take a "tanking" and even though you might lose value, you won't lose the battle completely.

You pays your money, you takes your chances (Popeye)

Best regards,

-- Joe (KEITH@neesnet.com), February 08, 2000.

The important thing to remember is "be comfortable with your amount of risk". If you find you can't sleep, then get your money in a safer form of investment. If you don't need the money right away, I would say to balance your portfolio with a mix of safe and "risky" allocations. The upside of the "high risk" investments is a potential high gain. But it's not wise to have everything in one type, no matter what the type.

-- liu (lookitup@dictionary.com), February 08, 2000.

Anne, you need to look at your entire portfolio to determine how balanced it is, not just the 401k. Seems like a lousy time to be risking your savings in a vehicle that you have so infrequent access to. If it is the annual tax benefits you are looking for, you will still have that in their "savings" plan. You would also need to take a similar look at what makes up the "mutual fund" choice; many of those funds are simply stocks. Good luck, this has been a tough issue for so many of us.

-- Brooks (brooksbie@hotmail.com), February 08, 2000.

Anyone who has followed the information here would naturally be leery of even medium risk in this market. I have turned from a bull into a bear and my money is in ultra low risk investments. Of course, ignorance is bliss and people who are in high risk investing at this point might make profits a hundredfold of what I will. Maybe I know too much. But even former Secretary of the Treasury Robert Rubin said yesterday that there can be a down side to the market. Yet, there again, I display too much learning, which might impede my making any money... My sense of prudence keeps me from investing at this very delicate point in time.

-- Mara (MaraWayne@aol.com), February 08, 2000.

You provided a large clue to the proper answer in your own question. You seem to be very uneasy with the high amount of risk you have undertaken. Conventional wisdom says, if you can't stand the heat, you don't belong in the kitchen.

I have to admit that I am a very risk-averse investor. When I put money aside, I mostly just want it to be there when I come back to get it, instead of having evaporated like a drop of water on a hot griddle. I know enough of history to know that ALL investments turn sour sometime or other. Even gilt-edged bonds. Stocks go sour more often than most, and "high-risk" stocks are exactly what they say they are!

If nothing else, I'd counsel you to do what any reputable advisor would counsel: don't put all your eggs in one basket! Split your account with some money going into each option. Only put as much into a "high-risk" fund as you could stand to see disappear (or at least return far less than you put in). This is especially true when your time horizon before you start withdrawing money at retirement is short. That is the time to pare back on risk.

However, this advice comes with the usual disclaimer: I am not a financial advisor. I do not play one on tv. Most importantly, I am not you. Only *you* can decide what to do with your money.

-- Brian McLaughlin (brianm@ims.com), February 08, 2000.

Anne, when I first got into our 401k I found the symbols for the funds that the company was offering and looked them up. I found a great spot at Yahoo that will show you 1 month, 1 year, 3 years etc for the stock fund as well as a daily amount of what the stock fund is going for. They also have current newspaper articles on each one. I read everything I could find on each one and basically chose the ones I thought would do the best. There are weird things about stock funds though, like if the fund manager quits or they get sued it can influence the price. The market does not seem to be based on reality at all, just if people think it will go up or if they think it will go down, based on their moods. It seems to be a little PMS'y right now.

For someone close to retirement you might want to consider putting a huge chunk in the safest fund available and divvying the rest up among moderate and a smaller portion to high risk. At 43 right now mine is all in the lowest risk until I am convinced things are okay. I'm not a stock market person though...Just an ordinary person in the same boat as you...

Also you can look up "MorningStar". They rank funds 1-5 * kind of things. Hope this helps...

Also, once you get the "mix" you want you need to reevaluate on a periodical basis.

-- Lurker (Lurking@Idaho.com), February 08, 2000.

Your second scary decision was to ask for financial assistance in this forum.

-- Blarney (caveat@emptor.com), February 08, 2000.