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An idea occured to me today and I need some advice.
I'm 38
A few months ago I got tired of the market volatility and I moved my 401K into a govenment bond fund (FEDBX)
This has in effect sheltered me from most of the down swing we have seen in the last few weeks.

What to do now is my question.
Holding in the bond fund makes me subject to interest rate changes. This in my mind sounds positive but nothing is making sense at the moment.

The idea I had was to borrow half of the money in my account effectively insuring that it will not go down.

I would then be paying myself interest on the loan at between 5 and 6 percent. In theory I could swing that loan into a fixed return 90 day CD or longer gaining me 3 to 4 percent

This would also allow me to potentially buy back into the market with cash sometime in the future.

The 2 to 3 percent spread between the interest I payback to my 401K and the CD return, would have to come out of my cash flow but I don't see that as a loss because I am paying myself back.

If nothing else I will be cost averaging when I swing my new money (both my regular contributions and my bi-weekly loan payments) into buying my regular aggressive growth funds.

Does that make sense to anyone?
What am I missing?


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Well, back in the late '80s when the market also wasn't doing so well, I did something very much like that. What I did was borrow some of my 401(k) balance to pay off both our car loans early. They were used cars, and small cars, so we're not talking a ton of money, but I figured that:
- The interest rate (around 7% if I recall correctly) was lower than what I was paying on the car loans;
- I was paying myself a better return than I was making in the market at that time;
- I saw it as a way to effectively make an *extra* contribution above the normal contribution limit (I maxed out then, and still do).

I paid back the loan using payroll deduction without any problems, and the market recovered afterward, so I guess my timing was pretty good (read: lucky).

The biggest risk I see is that if you lose your job, the entire loan becomes due *immediately*, and if you don't have the cash, you get nailed with penalties and taxes due on the balance. The other risk, of course, is that the market rebounds while your loan is locked up in those CDs, and you're stuck earning 3-4% on that money when the S&P 500 is going up 20% or more.

To me your plan sounds like a stretch, frankly, chasing a couple of percentage points to deal with a short-term problem. Does your 401(k) offer a money market fund? My plan has one that currently yields about 4%. That might be a middle-ground solution for you.

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The interesting fact is we don't know where the market is going. It could rebound or tank some more.

I have money from an inheritance in a trust account. The account rose 20% over the last few years. Now I am down 10% from the original contribution.

Personally, I am upset with myself that I lost so much money with this account. I couldn't stomach loosing my parent's life work. So, I went to a money market.

I want to keep the money in a Treasury Money Market account. Then I could invest the dividends into a Total Stock Market fund.

I am unsure about my philosophy at the moment and the money simply sits in the Money Market.

Some may say selling out was foolish. In the meantime, I pat myself on the back that I didn't loose another 10% from last week's losses.
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Thank you for the advice. Much appreciated.

Since I have recently payed off all of my credit cards my wife and I have made the decision to leverage the 45% loss avoidance back into the market at low points. Over the last few week I have moved funds from my (FedBX) fund to a S&P index fund (VIFSX).

Generally, at the end of each session if the market is down 2% or more I have moved 25% from bond to index. So far I am 50 50 now. Since I still young enough to handle some volitility (38) I am not planning on catching the bottom but rather average down.

I intend to keep at least 25% in bond funds just incase things get really terrible (Dow dips below 6K)

God I hope that doesn't happen.
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