JP Morgan Chase Smith Barney whatsis

[pioneer98]

Someone may need to explain to me soon why I shouldn’t withdraw a big chunk from my 401K account and pay off my mortgage. I’m honestly wondering if keeping it in the market is the best use of it.

That may be a bit extreme. If not a mortgage, I'm thinking of moving it somewhere more transparent and tangible than a giant mutual fund wrapped up in all this complexity. Paying off my mortgage would be just one possibility. I feel this way because the last time we had a meltdown, my 401K lost 30%, and the same crap is still going on. Back in 2008, I had my 401K spread around 5 different funds with supposedly varying degrees of risk, from "high risk/high reward" all the way to low risk/low return funds. Didn't matter which fund - they all went down 30% right off the top. Just having anything at all in the market seems "high risk" these days.

I don’t care if the individual trying to convince me one way or the other is liberal or conservative, as long as they use facts and data.

[JackofDiamonds]

You can liquidate; let me know what you plan on doing with the money that's better than 110 years of market history. We're at the zero bound for interest rates, anything else you're doing with your capital is just as risky. There's more financial risk in the world than market risk (company/interest rate/inflation/etc.). 2008 had incredibly high correlation across asset classes, but it wasn't that unique of a collapse. Market pullbacks happen, getting out when it's down is the only way to guarantee that you lose. I put more in the market in 2008 and 2009, and I'll do the same if it collapses again. Everything's on sale, get it while it's hot.

[pioneer98]

JPM down 15% since the news broke.

[AdmiralKird]

The market will probably keep going down for the next two months. The market's fixation on a Greece pull out is so strong that until there is some kind of positive news with Greece we will only go sideways.

If there is a double-dip recession it will not at all be because of JP Morgan. You could have one if Greece does pull out of the EU, goes back to their old currency, devalues the money banks in Europe have placed in Greece, causing a drop in their capital and weakening everything else around the world. Right now a lot of people are guessing Greece has about a 50-50 chance of leaving the EU.

If you pull out now you will miss out on a great return when Greece stays in and the European situation stabilizes. If you pull out you're guaranteed to keep what you currently have. You're about + or - 20% either way.

It's your call.

[JackofDiamonds]

The market will probably keep going down for the next two months. The market's fixation on a Greece pull out is so strong that until there is some kind of positive news with Greece we will only go sideways.

If there is a double-dip recession it will not at all be because of JP Morgan. You could have one if Greece does pull out of the EU, goes back to their old currency, devalues the money banks in Europe have placed in Greece, causing a drop in their capital and weakening everything else around the world. Right now a lot of people are guessing Greece has about a 50-50 chance of leaving the EU.

If you pull out now you will miss out on a great return when Greece stays in and the European situation stabilizes. If you pull out you're guaranteed to keep what you currently have. You're about + or - 20% either way.

It's your call.

Well, Greece is [expletive], I don't think anyone is arguing that. They're dealing with a run right now that's going to cripple them, Fitch has downgraded them to CCC, and there's no telling what the rest of the EU is going to do to save them. Then again, all of that is likely priced in right now. Smart money has known this for a long time. The growing chorus (started a month ago in earnest) I've been hearing from portfolio managers we've talked to has been the effect of a bank run on Spain... which has started. Moody's will be downgrading Spanish banks in no time, then we get to see what happens.

Small cap emerging markets... get at it.

[pioneer98]

You can liquidate; let me know what you plan on doing with the money that's better than 110 years of market history. We're at the zero bound for interest rates, anything else you're doing with your capital is just as risky. There's more financial risk in the world than market risk (company/interest rate/inflation/etc.). 2008 had incredibly high correlation across asset classes, but it wasn't that unique of a collapse. Market pullbacks happen, getting out when it's down is the only way to guarantee that you lose. I put more in the market in 2008 and 2009, and I'll do the same if it collapses again. Everything's on sale, get it while it's hot.

Well, the thought I am kicking around is that I wouldn’t 100% liquidate. I’d probably just liquidate enough to pay off my mortgage. My interest rate is low, yes, but my principal is high so it is still a lot of interest I am paying every month.

At a bare minimum, I’d keep putting into my 401K the amount to get the full match from my employer. If I no longer had a mortgage, though, I may decide to take that mortgage payment and put it into my 401K. If I did that, I’d reduce my taxable income even further than it is now. In other words, yeah, my mortgage interest is only like 3% and is a tax write-off...but if I took my mortgage payment and put it in my 401K every month, the whole thing is pre-tax and is essentially a write-off. And I could easily beat 3% in terms of return. Right now, I put a chunk of my paycheck in, but not as much as I could if I no longer had a mortgage.

Or I might keep some of that pay and invest it in other ways. In particular, someday I may buy my next-door neighbor’s house if/when it goes on the market. It's kind of a unique situation, I guess, but I’d need cash to do that. Making sure my neighbor’s house was in good shape would also protect my largest investment (my own house)…and could produce a return of its own if I rented it or flipped it.

And again, you misunderstood. It’s not that I wouldn’t have any money in “the market” at all. I would. I’d just like to find ways to get into the market that I had more direct control over. I feel my 401K is a bit limited in terms of the choices available.

[vinsanity]

At a bare minimum, I’d keep putting into my 401K the amount to get the full match from my employer. If I no longer had a mortgage, though, I may decide to take that mortgage payment and put it into my 401K. If I did that, I’d reduce my taxable income even further than it is now. In other words, yeah, my mortgage interest is only like 3% and is a tax write-off...but if I took my mortgage payment and put it in my 401K every month, the whole thing is pre-tax and is essentially a write-off. And I could easily beat 3% in terms of return. Right now, I put a chunk of my paycheck in, but not as much as I could if I no longer had a mortgage.

You may consider talking to an advisor or accountant and crunch some real numbers. Is your effective mortgage or actual rate at 3%? If your actual rate is 3% it's more like 2% after the tax deduction. Even with the swings in the market short term, you'd probably end up gaining alot more long term than the 2% you'd save paying off the mortgage especially if you keep pumping money in to the 401k on the way down. Also depends on your other plans and how close you are to retirement.

Compound interest is a wonderful thing.

[pioneer98]

You can liquidate; let me know what you plan on doing with the money that's better than 110 years of market history. We're at the zero bound for interest rates, anything else you're doing with your capital is just as risky. There's more financial risk in the world than market risk (company/interest rate/inflation/etc.). 2008 had incredibly high correlation across asset classes, but it wasn't that unique of a collapse. Market pullbacks happen, getting out when it's down is the only way to guarantee that you lose. I put more in the market in 2008 and 2009, and I'll do the same if it collapses again. Everything's on sale, get it while it's hot.

This post was just wrong in other ways as well.

Yes, the market has always had an upward trend if you take a long enough view. But that doesn’t mean there haven’t been long stretches where it did poorly. Like, you know, a bad decade (ask Japan). I don’t want to have a bad decade. I want to beat the market during those times. It can be done, but not real easily with the limited options of a 401K.

I let my 401K ride through the downturn hoping to regain it, and I did get back most of it. And I continued to buy since then, too. But I’d be real cautious right now. There is no guarantee the next 3-5 years are going to be good. Seems like a good shock could easily send it backwards again. The only way to guarantee “winnings” is to leave the table when you are up.

[JackofDiamonds]

You can liquidate; let me know what you plan on doing with the money that's better than 110 years of market history. We're at the zero bound for interest rates, anything else you're doing with your capital is just as risky. There's more financial risk in the world than market risk (company/interest rate/inflation/etc.). 2008 had incredibly high correlation across asset classes, but it wasn't that unique of a collapse. Market pullbacks happen, getting out when it's down is the only way to guarantee that you lose. I put more in the market in 2008 and 2009, and I'll do the same if it collapses again. Everything's on sale, get it while it's hot.

This post was just wrong in other ways as well.

Yes, the market has always had an upward trend if you take a long enough view. But that doesn’t mean there haven’t been long stretches where it did poorly. Like, you know, a bad decade (ask Japan). I don’t want to have a bad decade. I want to beat the market during those times. It can be done, but not real easily with the limited options of a 401K.

I let my 401K ride through the downturn hoping to regain it, and I did get back most of it. And I continued to buy since then, too. But I’d be real cautious right now. There is no guarantee the next 3-5 years are going to be good. Seems like a good shock could easily send it backwards again. The only way to guarantee “winnings” is to leave the table when you are up.

No, my post isn't wrong, it's just snippy. I did misunderstand your original post, I thought you were looking to get out of the market in general, not just weighing the opportunity cost of being in the market vs. having a mortgage. Otherwise, my post isn't wrong, it's long view. I am not telling you to stay in your 5 funds in your 401k and hope everything comes up Milhouse. I am not going to give any investment advice. I am going to tell you that trying to time the market for a good decade or a bad decade is pretty great way to underperform. Big years follow down years, which proceed big years, etc. etc. The US market is not Japan, and implying that we're in a similar boat (even with artificially low interest rates) is a superficial read.

If you want actual answers for your situation, contact a local CFP and go through the exact numbers.

[AdmiralKird]

The market will probably keep going down for the next two months. The market's fixation on a Greece pull out is so strong that until there is some kind of positive news with Greece we will only go sideways.

If there is a double-dip recession it will not at all be because of JP Morgan. You could have one if Greece does pull out of the EU, goes back to their old currency, devalues the money banks in Europe have placed in Greece, causing a drop in their capital and weakening everything else around the world. Right now a lot of people are guessing Greece has about a 50-50 chance of leaving the EU.

If you pull out now you will miss out on a great return when Greece stays in and the European situation stabilizes. If you pull out you're guaranteed to keep what you currently have. You're about + or - 20% either way.

It's your call.

Well, Greece is [expletive], I don't think anyone is arguing that. They're dealing with a run right now that's going to cripple them, Fitch has downgraded them to CCC, and there's no telling what the rest of the EU is going to do to save them. Then again, all of that is likely priced in right now. Smart money has known this for a long time. The growing chorus (started a month ago in earnest) I've been hearing from portfolio managers we've talked to has been the effect of a bank run on Spain... which has started. Moody's will be downgrading Spanish banks in no time, then we get to see what happens.

Small cap emerging markets... get at it.

Look on the bright side, CCC is pretty good for being a sovereign government and only having $1.2 billion of spendable cash in the bank.