Think of Your Investments Like a Herd of Cattle
I guarantee that you don’t recognize my username. I’ve been reading
the CM boards for quite some time. I finally got around to setting up
a username but hesitated in posting. However, "something" in your
post struck a chord, and so you, you lucky guy, you get to be the one
to whom I lose my posting-virginity!! I’ll remember you always!
I’ll try to keep it brief however it likely will turn out to be a
very long-winded answer to your short question…
In my view, there are probably four steps…
The 1st step is that you need to know what that 403b is designed
to be used for in "your" financial plan. ie – is it your source of
income…is it a lump of capital that you will put to work and live
off the growth….is it a lump of "attitude" money…is it something
that you plan to give away…there is no wrong answer, but you need
to know what the answer is.
A different way to think of it…think of the 403b like a herd of
cattle. If you plan to eat it one cow at a time, then quick math
will tell you how long you can eat. Alternatively, you could milk
the cows – again, quick math will tell you how long you can survive
on drinking or selling the milk but now you must factor in the costs
that go with keeping the herd in milk-producing condition.
Another option is to breed the cows, maybe a few times, and then, and
only then, do you consider eating some of those grand-calf-dren (what do
you call a cow’s grandchildren?)
(Ken – being the virgin-poster that I am, I did not bring a thesaurus –
it will be better next time, I promise!)
Then, the 2nd step is to ascertain what choices you have available to
you within the 403b and which of those choices help you achieve step one.
You may find that NONE of them do. Keep in mind – "cash" is a position.
If you’re worried about hyper-inflation, then keep in mind that when
interest rates rise (and we’re near zero now), bond values fall, so you
might want to think twice about being in bonds should that occur.
Also, in hyper-inflation, you want to do some research beforehand to see
how various asset classes (growth stocks vs value vs specific sectors) have
Previous posters have speculated what some of your alternatives may be,
but you’ll have to do the homework to know what is available to you.
ie – There may be some specific sector funds; contra funds; bonds;
growth; value; big cap; small cap; "retire-by-this-date"funds (which are
typically a pre-determined mix of equity & bonds), blah blah, blah.
Whatever they are, you have got to know – more importantly, you need to know
what they do.
Assuming that there is at least one alternative that helps you toward the
answer from step one…The 3rd step is to understand how often you can
shift monies within the 403b – as well as what the penalties are for
shifting more frequently. Why is this important? Well, "if" your
objective is growth, and you, at some point in the future, intelligently
and rationally come to a decision that "being in" is better than "cash",
then you "get in". However, if you’re wrong, you need to re-position to
For those whose fingers are poised on their keyboard, about to blast me and
claim "you can’t time the market", put your hands back in your pockets as
that is not what I’m referring to….
A different way to think about it…if you intend to go north on the
freeway, and mistakenly get on the southbound…do you kick & scream for
the next 100 miles; cursing that you’re going south when you really
want to be going north? Nope – you simply get off the southbound and
look for a northbound entrance. You don’t whine about the gas you
wasted, nor about the excess wear/tear on your car from driving a few
miles out of your way..you simply look for a sensible opportunity to get on
that northbound freeway. It may not appear for awhile, but when it does, you
get on the northbound as you originally intended. It is the same thing with
the market. There was a great post within the past 30 days that DogsInaPile
wrote where he spoke about the mindset of investing and trading.
Your question is something that I’ve seen a lot of over the years. I’m seeing
much much more of it today due to the current market environment.
Robert Kiyosaki wrote a simple yet brilliant way to think about where
an individual’s cash comes from – the book is Cash Flow Quadrant.
In it, he speaks about the 4 possible sources of income that are available
to people…(in my words) Wages/Welfare; Self-Employment; Biz Owner;
It is not uncommon to find people that work for wages their entire life. They
put some money away into a 401k, 403b, ira, etc…and they claim that they
intend to "live off their investments when they retire". Yet, if you ask them
"what does that really mean?", you’ll often receive a shrug in response. They
have no idea what that means. It is almost like an addiction…to hopium.
It would be a prudent & wise thing to allocate some time/resources to learn how
to "live off investments" while one has an income and does not NEED to live
off their investments. Everyone wishes that they would have started five years
ago. However, that same sentence will still be true in five years. It is better
to learn HOW when it is not necessary, then being forced to learn HOW when
it becomes necessary.
There are lots of places to go to find education. I believe that before one
worries about that, they have to know what they are trying to do.