What to do with 403b plan.

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Ken C's picture
Ken C
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What to do with 403b plan.

I have a 403b plan (like a 401k but for educators) that I cannot rollover or liquidate until I retire (2 years). Fortunately, I sold all  of my mutual fund postions last year just before the big meltdown on Wall Street. The problem is that it is mostly sitting in cash and  really not making any money.

 I am only allowed to buy mutual funds with it. I can't buy stocks, options, ETF - only mutual funds.

 What to do???? I can't liquidate but I don't want it to just sit for 2 years.

 I did buy some Fidelity Select Gold Fund (FSAGX) but I am looking for ideas on how else to diversify so I have something left in two years. 

 I am sure some other people must be in the same situation with 401k that they can't liquidate.

 

Any ideas would be welcome.

 

Ken

 

caroline_culbert's picture
caroline_culbert
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Re: What to do with 403b plan.
kenc wrote:

I have a 403b plan (like a 401k but for educators) that I cannot rollover or liquidate until I retire (2 years). Fortunately, I sold all  of my mutual fund postions last year just before the big meltdown on Wall Street. The problem is that it is mostly sitting in cash and  really not making any money.

 I am only allowed to buy mutual funds with it. I can't buy stocks, options, ETF - only mutual funds.

 What to do???? I can't liquidate but I don't want it to just sit for 2 years.

 I did buy some Fidelity Select Gold Fund (FSAGX) but I am looking for ideas on how else to diversify so I have something left in two years. 

 I am sure some other people must be in the same situation with 401k that they can't liquidate.

 

Any ideas would be welcome.

 

Ken

I would just purchase the cash.  I pretty sure you can buy cash mutual funds to invest in.

Ken C's picture
Ken C
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Re: What to do with 403b plan.

HI Caroline,

 

By cash I meant money market funds. With the expectation of a possible collapse in the dollar money funds will lose value also.

 

Ken

 

Ragnar_Danneskjold's picture
Ragnar_Danneskjold
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Re: What to do with 403b plan.

It isn't clear what options you have available.  You mentioned Fidelity Select Gold, which is a good choice.  I'm assuming you have other Fidelity options, and I've listed a few you might want to look into further:

FWRLX Fidelity Select Wireless
FNINX Fidelity Select Network & Infrastructure
FSNGX Fidelity Select Natural Gas
FLATX Fidelity Latin America
FHIFX Fidelity Focused High Income
FNMIX Fidelity New Markets Income
FNARX Fidelity Select Natural Resources
FFRHX Fidelity Floating Rate High Income
FSDCX Fidelity Select Communications Equip
SPHIX Fidelity High Income
FSTCX Fidelity Select Telecommunications

 

This was a search based on returns over past 3 months, and past performance is not an indicator for future performance, etc..  However, some of these make good sense to me, given current and anticipated conditions. 

caroline_culbert's picture
caroline_culbert
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Re: What to do with 403b plan.

Research heavily and then... PLACE YOUR BETS....

OK...

all bets are closed....

good luck!!

JL Lord's picture
JL Lord
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Re: What to do with 403b plan.

Ken

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
historically performed.

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
cash. 

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;
and Investing. 

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. 

JL Lord

 

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Re: What to do with 403b plan.

JL -

Nice first jump into the pool.

Reminisences of a cattle trader?

Ken C's picture
Ken C
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Posts: 753
Re: What to do with 403b plan.

JL

Thanks for the long post and the advice.

 

My original plan was to simply let the 403 b grow with conservative investments over a long period of time since I don't expect to need it for awhile. However, with my growing awareness of what has and is currently happening to the economy and the markets I don't want to lose it all either. By lose it all I mean the possibility of hyperinflation and/or confiscation by the gov..

 

I do appreciate it that you took the time compose your thoughtful response.

 

Ken

 

qxcvr's picture
qxcvr
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Posts: 10
Re: What to do with 403b plan.

I have read that it is possible to put actual gold and silver bars/coins into a 401k/IRA.  This may not apply to your 403b.  It would be worth a look if you are interested in that sort of thing.  I commonly buy silver to hold in a local safe deposit box from North West Territorial Mint (google them). They have some info on their site about how to put their precious metals in your retirement account.  I never looked into it but I bet a shiny silver coin that it's possible! perhaps see if a local credit union could actually hold the metal for you somehow.  If not, maybe buy into some mutual funds that invest in mining operations for metals.  North West Territorial Mint is actually owned my Pan American Silver.  I guess if you expect the prices of metals to rise A LOT, then you can expect a place like Pan American to have some nice profits in the future.  Find some mutual funds that hold a lot of stock in metals mining companies.  Hope that helps.  -Dan

JL Lord's picture
JL Lord
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Posts: 30
Re: What to do with 403b plan.

ken

Thank you for your kind comments on my earlier response.

I may be reading too much into your most recent comment about "...let the 403b grow with conservative investments
over a long period of time since I don't expect to need it for awhile..." but let me tackle it nonetheless.

First off - when you say you don't need it for awhile...if you've not done so, do give some serious thought to how you want to use it when the time comes that you do need it...think of the cattle example in the earlier post...are you going to eat the investment, or eat its children, or eat its granchildren.

2nd comment - you mentioned concern about losing it all due to the possibility of hyperinflation.  As mentioned earlier,
first look at the options you have available to you, then go back and study how those options have performed historically
in hyperinflation scenarios.  You can use the US markets and specific sectors at the end of Carter's term as a first example, although that isn't exactly hyperinflation.  Look for other periods in US history where we had heavy inflation and look to see how various sectors performed.   Additionally, do some digging to find out how various sectors performed in non-US markets during periods of hyperinflation - Argentina is a recent example that comes to mind. 
Don't limit your research to just one time period - one specific does not allow one to form a generalization. 

3rd thought - Something to let marinade in your brain for awhile...
what is the definition of "conservative investments"?  Some would use that phrase to refer to dividend paying stocks; others would use it to refer to bonds; in years past, that term was applied to owning shares in AT&T; Which is the correct answer?  The correct answer is the answer that 'you' give. 

I would answer it in a way that just might get me a rip from someone reading this.  In my mind, the riskest investment is
one that the buyer does not understand.  The converse does not hold - ie simply understanding something does not automatically make it conservative.  For example - bonds may be considered 'conservative' yet holding them in a period of rising interest rates would not be considered conservative

Lastly - the comment about govt confiscation.  It has been reported that ideas are being bantered around Congress about
moving 401k and/or IRA balances into some kind of a guaranteed return fund.  If that gains traction and looks like it will
happen, then you probably have a few choices (and one prayer).

If it passes, the 'prayer' is that there is a future date assigned.  If it passes and is implemented immediately, then
there is nothing that can be done - the opportunity to grow those account balances just disappeared.   However, if it
is to be implemented at some future date, then ira holders get to go through the mental gymnastics associated with considering taking the withdrawl, pay taxes and (any) penalties on the withdrawn funds, and then put those funds to use in a taxable account. 


For someone who has not taken the time to learn how to make money work for them, I dont know the answer.  For someone who does, it becomes a simple math problem to figure out which alternative is better. 

The above statement applies to an IRA.  What happens to a 401k held at a current employer?  In my opinion, there are at least two choices.  (By the way, this is 100% speculation since no legislation is pending, to my knowledge, and thus the guidelines are unknown.)  

One choice is to say "oh well". 

Another choice is to quit and withdraw the money.  (That may draw some counter-point discussions.)

Everyone's situation is different so a one-size-fits-all statement is impossible.  For ex - a young person with a smaller 401k balance would have a different answer than would a middle-age person with a very large balance which would be a different answer than that of a soon-to-retire person with medium size balance looking at a possible impact to their pension
(there might be a heads-up message here also...how secure is that pension stream? Compare it to the trade-off of having those 401k funds in hand - see Chris' recent post about the CTA pension issue as well as how strong you believe the PBGC to be....how do you spell "just print more money")

The net of this...nobody cares about your money more than you do.   It behooves you to learn how to make money work for you.

ken - this next part is not targeted specifically for you but for others that might read this...

Family & friends are sick & tired of hearing me say how amazed I am that people are willing to outsource their future.

What I mean by that is....most people are happy to hire a housekeeper or a gardener to handle the mundane tasks of cleaning the house and mowing the lawn.  We'll send our shirts to the cleaners rather than iron them ourselves. 
Broadly speaking, individuals are willing to outsource the mundane tasks.

We'll also outsource the specialized tasks like putting on a new roof or a new airconditioner.  Most people are smart enough to probably figure it out, but they realize that the event is a once in a decade or once in a lifetime event and it is far simpler to simply write the check to someone who does that task every day in their profession. 
Broadly speaking, individuals are willing to outsource the specialized.

If you observe corporate America, you'll see that they too are willing to outsource activities that are not part of their core competency.  For example, they'll outsource a call center, or they'll outsource janitorial services.  However, you would have a hard time convincing, for example, GM or Ford that they should outsource to Toyota, even though Toyota is kickin their butt...and kickin their butt by whatever measurement you wish to use.  GM or Ford or any corporation is typically unwilling to outsource their "crown jewels".
So, broadly speaking, corp america is willing to outsource the non-essential tasks but unwilling to outsource "the crown jewels".

Now, going back to individuals...of those that work, most people work becuz...
1) they need the money
or
2) they're working toward retirement
or
3) they want/need something for stimulation

In my experience, most of the people in groups 1 & 2, get their quarterly 401k, IRA, and brokerage statements in the mail.  Before they open it, they'll drop to one knee, look to the heavens, genuflect once or twice, open the envelope, and then either gasp in surprised joy or gasp in horror at what they see on the statement. 

The words spoken are either "Thank God - not as bad I had expected"  or
"insert favorite profanity here", followed by a gut-wrenching feeling.

Either one of those signifies someone who has put their future into the hands of someone else's judgement.  That 'someone else' is determining your future and your future financial well-being.  If this describes you, then you're doing what corporate america refuses to do - outsourcing the crown jewels - the crown jewels of your own financial future. 

JL

cat233's picture
cat233
Status: Platinum Member (Offline)
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Posts: 575
Re: What to do with 403b plan.

jl,

please post this in the trading thread.

thanks, 

cat

 

JL Lord's picture
JL Lord
Status: Bronze Member (Offline)
Joined: Feb 17 2009
Posts: 30
Re: What to do with 403b plan.

 

Please don't call out the Dog(s)....consider it done.

JL

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