Your 401(k) Plan May Provide a False Sense of Security

 

By Daniel Solin

On the depressing side, the median participant account balance in 2013 was only $31,396. The average balance was $101,650. If you are a participant in a 401(k) plan with an average balance, and are depending primarily on your defined contribution investment to fund your retirement, you had better be prepared to live on $5,000 a year or less. 

If one thing is obvious from the sordid history of 401(k) plans, it's that most participants are incapable of putting together a globally diversified portfolio in a suitable asset allocation on their own, using low management fee index funds. Of course, this assumes that low management fee index funds are even an option. Although they are available in Vanguard plans, these funds are more the exception than the rule in 401(k) plans "advised" by brokers and insurance companies. 

If you are serious about saving for retirement, you will need to put aside a minimum of 15 percent of your income each year, including the employer match. Realistically, that number should be closer to 20 percent.

DYI Comments:  Dan Solin is quite correct in his number being closer to 20%; this number is based upon NO interruptions in income.  Recessions, technological changes affecting a career negatively, corporate buyouts then being downsized, time off going back for additional training, caring for sick loved one's full time, the list is endless.  Also the average Joe and Jane Doe (not those reading this blog) only have an understanding of the need to save for retirement.  The investment process is either confusing or some will confess totally BORING!  Plus market volatility is NOT their cup of tea, this is why I advocate they use a static asset allocation of 40% Stocks and 60% Bonds.  No changes will be needed not even going into retirement.  With that said let's go back to that 20%; I would venture to say 25% is the more realist number(OUCH!).  A staggering percentage especially those in the lower income range.

  VIX Contracts Signal Bigger U.S. Stock Swings Ahead

“Fear always comes in waves,” Randy Warren, who manages more than $100 million at Exton, Pennsylvania-based Warren Financial Service and Associates Inc., said by phone on July 11. “Over the course of 60 to 90 days, things could get pretty ugly. You could actually see the VIX well into the 20s, 30s, maybe even the 40s.” 

More than $1 trillion has been wiped from the value of global stocks since a peak on July 3 as signs of financial stress at a Portuguese bank and speculation the recent rally is overdone pulled stocks down from record levels. Raymond James & Associates Inc. last week said stocks are vulnerable to losses and Citigroup Inc.’s chief U.S. equity strategist cited concerns for a “severe” pullback.

DYI Comment:  Who knows?  Short term I have no idea when this over blown market is going to break to the downside. No doubt with a VIX being so low and for so long in an elevated market it could begin it descent at anytime.  I'm just not smart enough to know when!

How Many Warnings Can You Give?

July 21st, 2014 by Michael Lombardi, MBA

 How many warnings can you give investors? 

Well, the warnings don’t seem to matter. The Dow Jones Industrial Average has plowed through the 17,000 level, and the stock market, as measured by the Dow Jones, is up three percent this year. 

Dear reader, the higher the stock market goes, the bigger its fall from grace will be. Don’t get suckered into the hype the mainstream media feeds us. Focus on the proven, long-term historical market valuation tools I have listed above and have patience as the case for a crash from these stock market levels builds. And remember: time is foe to the speculator, friend to the investor.

DYI