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Safe retirement investment?

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brian0918

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At the end of this year, I will start receiving retirement investments from my company. By default, they will place an amount equivalent to a fixed percentage of my salary into an SEP account with Merrill Lynch, however I can choose to manage it myself or to use another company altogether. Is Merrill Lynch safe from this whole crisis, and if not, what companies are? Should I just stick with Money Market accounts, or is there something better/safer?

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Historically, there has never yet been a 10 year period where the market did not end up making a profit. Even post the 1929 crash, it only took 5 years for the markets to recover.

This, therefore, is an excellent opportunity to get into investing for the long term.

My preference is for growth stock mutual funds. I don't like single stocks, too much risk.

I very much enjoy and appreciate the advice of Dave Ramsey on matters of finance, despite his religious twist to it. His input is good, common sense.

Since you are just getting started, I advise you to do NOTHING until you understand what it is you're getting into. To that end, you should get a good financial adviser. Good advice in the markets is worth its weight in gold coins minted by Mulligan Bank.

You can find good advisers who have the heart of a teacher here: http://www.daveramsey.com/sa/mutualfunds/ (Again, christian bias, but good advice in my experience).

As for Merril Lynch? Tough to say but I suspect they're relatively solid. You don't hear about them being very risk oriented, and its that high risk love which is coming around to bite the companies that are struggling today.

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Get several referrals from people you respect and trust, go to several initial consultations and choose a good, certified, financial planner. You would hire a plumber to do your plumbing, so why not hire a financial planner to do your planning?

I recommend someone who does fee-based planning for an independent firm (such as LPL Financial or Raymond James Associates) because that's a win/win situation. They're not required to sell proprietary crap, like Merrill Lynch and other big brokerage houses require. A fee-based plan because when your accounts do well, you both make money, when they do poorly, you both make less. That's incentive for him to work hard for your best interests.

If you don't have other accounts or a lot to invest at this time, you could look for an RIA (Registered Investment Advisor) who will just charge you a flat, one-time fee to advise you. (They charge you as an attorney would, by the hour or for a set fee, so they are usually more willing to consult with someone who does not have much to invest or is only investing in a company-sponsored retirement account for which they can make no commissions or fees.)

As far as what to invest in, if you're a long-term investor, it's hard to beat a well-diversified portfolio of ETFs (exchange traded funds.) A financial advisor can help you determine your investment horizon, risk tolerance and what allocation is appropriate for you. Be sure to meet with him again every 12-18 months for an account review and to rebalance your portfolio.

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http://www.investorwords.com/4493/SEP_Plan.html (basic definition of a SEP)

http://www.irs.gov/retirement/article/0,,id=111419,00.html (IRS info about SEPs)

As an employer, you can make either employer or employee contributions (or both) to the SEP. As an employee, you may make a regular, deductible IRA contribution to the SEP. (Per regular IRA contribution and deductibility rules, etc.)

Yes, there is a penalty if you take a distribution prior to age 59 1/2. (A 10% penalty plus the distribution is considered normal income for federal/state/local income tax purposes.)

EDIT: There are several types of retirement accounts (401Ks, solo 401Ks, SIMPLE IRAs, SEPs, etc.) that may be suitable for the self-employed and/or small business owner. I recommend consulting with a financial and/or tax advisor to determine which one may be best for your specific situation.

Edited by K-Mac
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K-Mac: I contacted a few local LPL Financial advisers. One guy wrote me back asking how I got his information. I explained that I found it on LPL's site, then he asked "ok... but why me in particular" :huh: , then I explained that I had contacted a few of the closest advisers. His response: "That's fine, but I need your full name, adddress, phone numbers. and SSN to proceed."

Does this seem odd? :blink:

Edited by brian0918
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Proceed to do what? He doesn't need your SSN to talk to you, and you haven't decided to give him your business yet, have you.

Exactly my thought. :blink: I feel like replying to him with: "Fine, but first I will need to know how much you charge, the size of your client base, and I would like evidence of your skills and past success with clients."

Follow-up: I replied to him with something along those lines. Note to anyone looking for business relationships in the future: it's not a good idea to start the conversation by asking, "why would you want me?"

Edited by brian0918
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Historically, there has never yet been a 10 year period where the market did not end up making a profit.

That's not true. If you invested through the 1990s and suffered through the post 2000 crash, you never really recovered...

...if you held it from '98 to today....you lost money....on both the S&P and the DOW.

Study the chart --> ineffective2.gif

You can find good advisers who have the heart of a teacher here: http://www.daveramsey.com/sa/mutualfunds/ (Again, christian bias, but good advice in my experience).

Dave Ramsey has the same problem that Suze Orman does. I mean, they're T.V. personalities who paint everyone with the same brush. They give advice without getting the full story on someone's finances. Dave loves mutual funds. Dave is also consistently wrong about mutual funds (http://www.twintierfinancial.com/the_uncommon_cents/2008/03/the-trouble-wit.html)...unless he changed his mind and started liking index funds again. But if you are going to track an index, why not save yourself some of the taxes and buy a random assortment of stocks? I mean I guess you could just buy an index fund, but about 40 random stocks would do the same thing and probably be cheaper. Just my opinion.

...he also makes a lot of false statements about life insurance, annuities, stocks, bonds, precious metals, and debt management.

As for Merril Lynch? Tough to say but I suspect they're relatively solid. You don't hear about them being very risk oriented, and its that high risk love which is coming around to bite the companies that are struggling today.

Merrill Lynch is having a lot of difficulties due to their subprime holdings. I would not use the word "solid" to describe them at this point.

I would also be careful about using fee-based planners in the sense that it might give you a false sense of security. In this business there are several ways to charge fees. Either by commission, fee-based, or fee-only. There is also a lot of criticism about commission and fee-based advisors because they both earn a commission in some way or form from working with you.

I used to work with fee only and fee-based planners...some were good, some were apathetic because once they got paid, they really didn't care too much what happened afterwards.

The true test of an advisor is not how he makes his money, but whether or not he or she teaches (aka advises) you how to be independent and shows you a comprehensive approach to financial planning or whether he or she uses subtle or not so subtle attempts to make you more dependent upon them.

Handing over your financial decisions - whether it be everyday decisions or long-term investment decisions - to someone else can have disastrous consequences. Guidance yes. Advice yes. Giving someone else your money and saying "here, make me more", very bad.

Edited by prosperity
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Does this seem odd? :huh:

Yes! What is that guy thinking?! :blink:

This is exactly why I suggest getting referrals from several people you trust and going for several consulations, then picking who you want to work with. There are good and bad apples out there, just like with every profession.

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Here's a retirement strategy for everyone: don't. Don't retire, don't stop being productive. Manage your funds to maximize returns but don't count on them. Too many people are in trouble, not because the market fluctuates but because they're counting on those savings so they can stop working. With all due respect, no productive achiever worth his salt would ever retire. He'd be pulled from his office or factory on a gurney or in a wheelchair. So yeah, save up for if you're too sick to work but plan on working as long as you can, not retiring, and you won't have to worry so much about what the market does.

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Many people never retire. We have several clients who formally retired from the company they worked for, but in retirement, they do other hobbies or home based businesses, consulting, etc., that may earn them a modest income; however, they also like to travel, buy retirement/vacation homes, spend money on grand kids, some have health problems, etc., so a retirement nest egg is highly advisable. You may not always be physically able to be productive and you need to prepare for a rainy day.

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Many people never retire. We have several clients who formally retired from the company they worked for, but in retirement, they do other hobbies or home based businesses, consulting, etc., that may earn them a modest income; however, they also like to travel, buy retirement/vacation homes, spend money on grand kids, some have health problems, etc., so a retirement nest egg is highly advisable. You may not always be physically able to be productive and you need to prepare for a rainy day.

Exactly! I had an individual, a few months back, say to me "I won't ever retire". I congratulated him. And then I asked him "what if you were forced to retire?"

While not planning on retiring is a good idea...life happens. If you can't work anymore because of some type of health issue (or it becomes extremely difficult to the point of being almost self-defeating and you need to slow down to a point where the level of productivity does not bring in the amount of money you need/want), you'll be glad you had saved or invested (or both) enough to live comfortably on.

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Brian,

As some have said, start by educating yourself about the major types of investment (unless you've done so already).

At an abstract level (i.e. talking about the principles you should follow) almost every contemporary money-manager will cover these areas:

  • Is this really retirement money? Think carefully... do you really want to take it out sooner, for some large purchase? For any money you invest, understand when you will really need it.
  • How well can you tolerate ups and downs? This is more than a question about your emotional make up. It encompasses: How old are you? Do you have a good stream of earnings coming in? What you want to do with your life... e.g. retire early and write the great American novel, or something less risky? and so on.
  • Asset Allocation: Based on what you say, your money-manager will tell you to put a certain percentage of your investments into stock-related investments, some other percentage into bond-related investments, etc.
  • Diversity: Within each "asset class", your money-manager will tell you to spread your risk. Don;t put all your eggs in one basket
  • Tax effects: Finally, your money manger will take into account whether you can get a tax-break on certain types of things. If you already have a sizable chunk of change, they will discuss how best to protect it from tax after you die.
  • Related issues: Depending on your age/life the money-manager might also talk to you about life-insurance and a will
  • Budgets: Some financial advisors will do more than investment; they will also help you plan your budget

Finally, using the above as a basis, the money manager will make specific advice: invest in this equity-fund, that ETF, some bond-fund, and so on.

What you need to do is to educate yourself -- with the help of the adviser, but also independently -- on the more abstract points listed above.

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Historically, there has never yet been a 10 year period where the market did not end up making a profit. Even post the 1929 crash, it only took 5 years for the markets to recover.

I think it's closer to 25 years. If you go by the DJIA, the market peak of 380, reached in Aug '29, wasn't regained until Nov '54; The peak of 187 in Feb '37 wasn't permanently surpassed until Oct '49; The peak of 986 in Jan '63, until Oct '82.

5 years after the crash, the market was down 75% from its peak.

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