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FREE ADVICE

Like many other people who are nearing or entering the retirement phase of my life, I have been subjected to the bloodbath taking place in the stock market, like all the rest of the small investors. I am at this moment, down 10.8% in portfolio value from my initial rollover of 401K funds into a brokerage IRA account in June. This is the first time, that I have really had the time to watch the stock market closely, and work hard to maximize the goodness of my investments which are now mostly in mutual funds. I tried to listen real hard to the so-called experts, in order to become a "smart" investor. I fine tuned my portfolio, trying to select the best of the best of the funds, paying close attention to the idea of asset allocation. From June 22 until July 21, when the slide began, I was up by approximately 5.7%, and my cash was nearly totally invested. Since July 21, I have watched the value of my portfolio take two steps backward, and then one step forward repeatedly until now. I have followed admonitions from the "experts" to consider only the long haul, and also not to "time the market". At this point in my life, I am now asking myself the question, "What do these so-called experts really know. They all spout their same tired advice with the regularity of Old Faithful Geyser at Yellowstone Park.

One of the "Great Truths" that the experts pressed on an unsuspecting public was the idea of asset allocation. The suggested allocation for small cap funds was 10%. My small cap funds lost money so fast that I swapped them out for balanced funds within a couple of weeks of buying them.

The suggested allocation formula included the recommendation that 20% of the portfolio should be devoted to international investments. I foolishly complied with this recommendation, even though the troubles in the May, 98 stockmarket were blamed on the "Asia" situation. So I invested my international allocation in European funds, which were doing great for the first half of the year. It is interesting to note that my 22% allocation to European funds is responsible for 36% of my total losses at this point. And yet these idiot experts now have the unmitigated gall to suggest that if the decline of stock prices has "unbalanced" an investors portfolio so that the original allocations have been distorted, the investor should now "adjust" the portfolio to bring it back into compliance with expert allocation advice.

My father used to say that advice is frequently not worth what one pays for it, and free advice is probably worth considerably less. My father was right!!!

Now as to the advice to ignore the day to day market swings, and to view investments only as a long term proposition, I can only observe that if I had the good sense to liquidate my investments on July 21, or soon, thereafter, I would certainly be in much better shape now. I would have gained the cash to invest at the depths of the markets despair, and would come out much better. It is pointed out that owners of IRA accounts are prohibited from using various portfolio hedging options such as selling short to protect themselves from a declining market. The IRA investor is totally at the mercy of the market unless he gets out, and then gets back in at the appropriate time. People who do not try to dodge the bullet and get out of the market remind me of the story about the farmer who won the lotto. When asked what he was going to do with the winnings, he said he was going to keep on farming until it was all gone.

I will offer one other piece of "free" advice to other small investors: IT IS ALWAYS DARKEST BEFORE IT GETS REALLY BLACK!!!!
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Not that it will bring you any comfort, but what would be the percentage of loss incurred had you left your funds in the orginal IRA?
(IMHO) it is wise to listen to what the experts are saying but not necessarily take any of their advice. It is important to remember that the market moves on emotion more than we would like it to. Thus we have to understand that when the experts all start singing from the same sheet watch for market moves. Or when certain experts speak individual stocks move. But if we have done our homework and the reason/s we invested in a holding have not shifted then why not hold tight. In the case of Asian, South American and maybe European funds there has been fundamental changes thus probably in the short term it is best to sell. But if you have the time, and it could be years???, these funds will probably recover. So it is a question of how long you have to wait for the recovery.
As for asset allocation, there is a reasonable to case to be stated for an allocation. The key point to the case "age" of the investor. In other words the older investor should not be invested in funds that have alot of risk depending upon how soon they want the invested money and can not wait for an upside in the market to sell. So allocation should be based on investing for growth(risk) and needed income from the investments. Also base your asset allocation on your comfort level not on some advise from a brokerage house or broker. If you want to stay ahead of inflation(say 4%) and withdrawn say 3% of your investments each year then you would need a 7% plus to not have to dig into your principal.
The asset allocation formula is great for putting money into the pockets of brokers. As you have seen they are always changing the allocation and they are always talking about keeping it balanced. This ploy allows them to churn accounts which means dollars from your pocket to theirs. If you don't buy/sell they don't make money!!! Brokers love the current market as investors are now in the fear stage of investing thus selling...the market will rebound and investors will transistion into the greed phase thus buying. So in this environment brokers can't lose.
I've rambled long enough. It is your money and you need to decided, based on your research, how you want to invest it. You decide what your asset allocation formula should be. And finally remember the market goes up but it also goes down but it will come back.
BEST OF LUCK
Hal
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...one other piece of "free" advice to other small investors: IT IS ALWAYS DARKEST BEFORE IT GETS REALLY BLACK!!!! ...

herz 'nuther one ...
As I sat in my cubicle, sad, lonely & dejected, a
voice came to me out of the gloom and said, "Cheer
up, things could be worse." So, taking the advice,
I cheered up, and sure as hell, things got worse.

Follow the advice of Will Rogers,
"When the market is down, buy!"

sail on, fulz
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... "You decide what your asset allocation formula should be. And finally remember the market goes up but it also goes down but it will come back."

Good advice. Also question the motive of the advisor. What is in it for him/her on the advice given? Is it general fluff, or do they get into nitty-gritty details on the WHY question?

Atza my advice,

Chief


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<<Like many other people who are nearing or entering the retirement phase of my life, I have been subjected to the bloodbath taking place in the stock market, like all the rest of the small investors. I am at this moment, down 10.8% in portfolio value from my initial rollover>>

Blacknblue,
Hang in there!
I did about the same thing. Retired mid 1997, rolled a 401K over and got into the market last June - July 98 with some cash from a property sale.
The roll over was not effective until late Sept which delayed some profits (which are in the tank for now).

I read up on the Dow Approach and carefully invested the cash just as the market began its drop. It had dropped about 8% when I bought..

So much for careful planning. In my situation, I think I was going about it mechanically and not paying attention to where the market was almost sure to go -- down, based on conditions.
I thought about liquidating the cash, then buy back in later but, got hammered when I asked if that made sense on another board. No one advised "sell."

As I gain experience now, it begins to look better. One or two of the stocks I picked is at or near my purchase price. I think the others will recover in a reasonable time and that is how the investment plan is designed to perform.
I am leaving my IRA roll over to an advisor for now. It is broadly allocated, etc, etc, and I am not ready to fool with it. Right now we are living on SS and income from rentals plus a small pension from one of the companies I worked for.
H.


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<<FREE ADVICE

Like many other people who are nearing or entering the retirement phase of my life, I have been subjected to the bloodbath taking place in the stock market, like all the rest of the small investors. I am at this moment, down 10.8% in portfolio value from my initial rollover of 401K funds into a brokerage IRA account in June. This is the first time, that I have really had the time to watch the stock market closely, and work hard to maximize the goodness of my investments which are now mostly in mutual funds. I tried to listen real hard to the so-called experts, in order to become a "smart" investor. I fine tuned my portfolio, trying to select the best of the best of the funds, paying close attention to the idea of asset allocation. From June 22 until July 21, when the slide began, I was up by approximately 5.7%, and my cash was nearly totally invested. Since July 21, I have watched the value of my portfolio take two steps backward, and then one step forward repeatedly until now. I have followed admonitions from the "experts" to consider only the long haul, and also not to "time the market". At this point in my life, I am now asking myself the question, "What do these so-called experts really know. They all spout their same tired advice with the regularity of Old Faithful Geyser at Yellowstone Park.

One of the "Great Truths" that the experts pressed on an unsuspecting public was the idea of asset allocation. The suggested allocation for small cap funds was 10%. My small cap funds lost money so fast that I swapped them out for balanced funds within a couple of weeks of buying them.

The suggested allocation formula included the recommendation that 20% of the portfolio should be devoted to international investments. I foolishly complied with this recommendation, even though the troubles in the May, 98 stockmarket were blamed on the "Asia" situation. So I invested my international allocation in European funds, which were doing great for the first half of the year. It is interesting to note that my 22% allocation to European funds is responsible for 36% of my total losses at this point. And yet these idiot experts now have the unmitigated gall to suggest that if the decline of stock prices has "unbalanced" an investors portfolio so that the original allocations have been distorted, the investor should now "adjust" the portfolio to bring it back into compliance with expert allocation advice.

My father used to say that advice is frequently not worth what one pays for it, and free advice is probably worth considerably less. My father was right!!!

Now as to the advice to ignore the day to day market swings, and to view investments only as a long term proposition, I can only observe that if I had the good sense to liquidate my investments on July 21, or soon, thereafter, I would certainly be in much better shape now. I would have gained the cash to invest at the depths of the markets despair, and would come out much better. It is pointed out that owners of IRA accounts are prohibited from using various portfolio hedging options such as selling short to protect themselves from a declining market. The IRA investor is totally at the mercy of the market unless he gets out, and then gets back in at the appropriate time. People who do not try to dodge the bullet and get out of the market remind me of the story about the farmer who won the lotto. When asked what he was going to do with the winnings, he said he was going to keep on farming until it was all gone.

I will offer one other piece of "free" advice to other small investors: IT IS ALWAYS DARKEST BEFORE IT GETS REALLY BLACK!!!!>>

Two months later the situation is much different. I hope you didn't move out because the funds/markets were doing badly. Remember its buy low / sell high.

What say you now about the market, Fool? or is it fool?

Z-Bar
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Z-Bar wrote:

<<The IRA investor is totally at the mercy of the market unless he gets out, and then gets back in at the appropriate time. People who do not try to dodge the bullet and get out of the market remind me of the story about the farmer who won the lotto. When asked what he was going to do with the winnings, he said he was going to keep on farming until it was all gone.>>

LOL - That's a good one Z-Bar! Who are the "experts" you refer to if you don't mind me asking? Your posting has particular significance to me because I just requested forms to rollover my former employer-sponsored IRA into a self-directed IRA.

Have you invested using any of the BTD approaches at this site?

Other than these disappointments, I hope you still have much to be thankful for this Thanksgiving.
--TL
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Like many other people who are nearing or entering the retirement phase of my life, I have been subjected to the bloodbath taking place in the stock market, like all the rest of the small investors. I am at this moment, down 10.8% in portfolio value from my initial rollover of 401K funds into a brokerage IRA account in June.

I cannot tell if I am retired or not. I stopped getting a salary January 1, 1990. I rolled over my retirement program (except for a fixed benefit retirement pension) on August 13, 1996 (right after I read the MFIG). Since then, it has had its ups and downs. But some perspective is necessary. It hurt to be down $250,000 from about May to October this year, but I consoled myself with the fact that I was still up over $75,000 for the year. I.e., it is important not to get too short-term about these things. I guess I would not call what has happened so far this year to be a blood-bath. Unless you were on too much margin or something.

Another $0.02 for S.O.S.
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Now as to the advice to ignore the day to day market swings, and to view investments only as a long term proposition, I can only observe that if I had the good sense to liquidate my investments on July 21, or soon, thereafter, I would certainly be in much better shape now

I would guess you picked the July 21 date AFTER the fact. How would you have known before the fact? Timing the market is a guessing game and can cost a lot of money in commissions trying to get in and out at the "best" time. It can also drive you up a wall analizing the situation.
In my opinion, your problem is related to the mutual fund criteria which preaches broad diversification for "safety." Small caps are volatile (but can produce rewards) and international investments led the way unfortunately, in the correction starting in July.
I would seriously think about holding until you achieve some recovery over time.
Without a doubt, I recommend you read the Motley Fool 13 Steps in The Motley Fool School and look over the info on Beat the Dow, Foolish Four, etc, for smarter investing.
I bought stock along these guide lines in late July and watched it drop 10 - 15% and then recover in the last two weeks. I will HOLD for long term.
H.
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1. I did alot like you when I first started trying to grow my IRA funds (not mutual). Lots of ups and more downs in most years. Then in early 1996, after following it and working up my courage for about three or four years, I put 90+% of my IRA into Berkshire Hathaway Corp (BRKA and BRKB, Class A and Class B issues, respectively).
2. The company is mostly an insurance operation (owns GEICO among other insurance things) and also owns a bunch of smaller companies plus considerable stock positions (8 - 12%) in solid companies like Gillette, AmericanExpress, Washington Post, Freddie Mac, Wells Fargo, and Coka Cola. The operation is run by the "Sage of Omaha" Warren E. Buffett (old) and his buddy Charlie Munger(older).
3. Berkshire has grown (in price and in net worth/stockholder equity) between 24 and 25% annual average for the past 33 years -- naturally some years are better than others but it's the long-haul average that counts. That's doubling every three years.... Bang that up against your favorite mutual fund.
4. My BRKA has gone up 112% in 2.7 years. At this rate, a person can drag out ~15% per year for old age enjoyment or subsistance, whatever, and the principal will continue to grow.
5. Brokers don't like BRKA/B much because it is the epitome of the buy and hold stock, therefore no trading or sales commission in it for them other than the initial buy and very occasional small buys/sells for most loong-term holders. In fact, Warren Buffett says thet if you're not in Berkshire for the long-haul buy something else.
6. There is much info available on the web:
http://berkshirehathaway.com BRKA/B homepage -- much to read here
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Part two. Hit a wrong button and message was sent before I was done. Regrets.

Web sources of info in addition to Berkshire home page:

http://www.torontoinvest.ndsn.com Toronto Investment Club -- much solid long-term investment info.

http://www.fool.com -- The Motley Fool BRKA bulletin board. THe BRKA board has some good info but one must wade through much other chatter since one guy has virtually taken over that board. Info about alot of investment things if you have the time and/or interest to wade through the pronouncements.

http://messages.yahoo.com/bbs etc... Yahoo BRKA bulletin board.

htp://text.morningstar.net/ etc Morningstar wurprisingly has a bulletin board for Berkshire even though it is not a fund in any manner.

N. And finally. The price of BRKA today closed at $69,300/share and BRKB at $2,308. If you're still with me, one share of BRKB is like buying 100 shares of a $23 stock so it's really not as bad is it loooks initially. Seems Warren Buffett won't split the stock, says it would lead to speculation, etc. He puts his money where his mouth is since he and his family own over 40 percent of Berkshire stock. As he says, we eat what we cook.

N+1. Didn't intend to get so windy but wanted to give you enough to start thinking about this IRA/long-term investment path.

/s/ Tom.

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