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Investing/Strategies / Retirement Investing
|Subject: Re: What to do with a losing IRA||Date: 11/26/2004 11:08 PM|
|Author: Mark0Young||Number: 43299 of 81338|
1. Hold onto the fund indefinitely, continuing to contribute, thus lowering my average cost.
If your investment plan calls for holding this fund, hold it.
But if today you would purchase another fund, then sell and buy the desired fund inside your Roth IRA. Depending on who your Roth IRA custodian is, this might involve transferring your Roth IRA over to a new custodian (e.g., when I moved my Roth from a load fund family over to Vanguard).
It is a mistake to hold on to an investment until it recovers if one intends on selling it anyway.
2. Cash out and reinvest the money in my brokerage account. I am not sure though if there is a penalty for me cashing out since I have sustained a loss. Anyone know?
If you transfer your Roth IRA over to your brokerage, there is no tax penalty.
If you pull your money out of the Roth IRA (as opposed to transferring the Roth IRA), that money will no longer be available for tax-free growth. And the tax deduction for liquidating all your Roth IRA accounts and withdrawing all your money is small because you can only deduct the difference between the total of all contributions and the total of all withdrawals (assuming the total of all withdrawals is less than the total of all contributions) and that goes on Schedule A in the section subject to 2% AGI exclusion, and even then the bottom line of Schedule A has to exceed your standard deduction before you receive any benefit. So, if the dollar amount of the total loss is less than 2% of your AGI, you have no benefit from liquidating your Roth IRA account.
3. Roll what is left into a different IRA account (either my wife's or a new one for myself).
You cannot roll your IRA into your wife's IRA. As some people are fond of reminding us, the "I" in IRA stands for "Individual".
If your current Roth IRA custodian does not offer the investments you want to invest in, rolling over to a different Roth IRA custodian makes good sense.
Before moving your money, however, you should have an investment plan. You have not told us what your Roth IRA is invested in, nor what your investment plan is. Nor have you told us whether your investment portfolio is just the Roth IRA or if the Roth IRA represents a small percent of a much larger portfolio. (My Roth IRA is approximately 8% of my investments.)
You can guess by the variety of suggestions that different people are speaking from their different plans, but it does no good to follow one person's market timing plan for a few months, and then switch to an asset allocator's plan a few months later, and then a month after that switch to picking investments by fundamental analysis. While the goal is the same, the timing of buying and selling would be different for each of the investment plans.
My personal investment plan involves an asset allocation plan with periodic rebalancing. This is a method that tends to be advocated on the Vanguard, SmartMoney, Oppenheimer, TIAA-CREF, and Morningstar web sites, partially because it tends to have long-term success (though with short-term volatility), partially because it is easy (physically) to administer (but sometimes the emotions want to push against the plan), and partially because it requires just a little periodic attention (whereas market timing strategies tend to involve a lot more attention and fundamental analysis may land somewhere in between).
The important thing is to develop a plan that you have reasonable confidence in, and follow that plan. Once you have the plan, you can pick the best investments for implementing that plan. (Many Roth IRAs start out with mutual funds, hopefully low-expense, no-load mutual funds or exchange traded funds, to get broad market exposure with the small amount one can contribute each year.) And once you have chosen the best investments, then pick the most suitable Roth IRA custodian, e.g., a discount broker if holding individual stocks or exchange traded funds, or maybe a fund family (such as Vanguard) if the Roth IRA will hold mutual funds from one specific fund family. If one's investments extend beyond the Roth IRA, the investment plan should include all the other investments, too, and then part of what one does is pick the best accounts for holding the investments that best fulfill the investment plan.
Starting from the individual investments and failing to plan doesn't work as well and will leave you with questions every time your investments experience a dip. I think most participants on this thread would agree that aimlessly trading investments would likely lead to under-performance at best.
That is why I strongly recommend you form a plan and then change the Roth IRA custodian and investments accordingly.
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