View Full Version : I'm just not a risk taker
I have several IRAs with mutual funds. But it just gives me too much angst. So I'm moving alot of it to my Credit Union. I know it won't make me much money there, but I worry too much about losing it all in the stock market. So there. :0!
I understand your concern. We moved to safer investments over the last few years as well. Just keep in mind, that in a high inflation time, you'll actually be losing money by keeping it in the credit union. If you are getting 2% in the credit union, but inflation is at 5%, you're losing money. Not as much as if you stuffed it under the mattress however. :)
I'm also not a risk taker - at least not when it comes to money - and also don't invest - I'm a saver not an investor. I have never put anything I have - IRA's, 457 (like a 401K), etc into stocks or mutual funds. just put them into CD-type "safe" things where I earn a smaller, but guanteed, return. Even now most of my IRAs are earning over 7% interest because I locked them into 5 year CDs back when the rates were higher (and I will whine about the 2 or 3 % I'll get when that expires) but I KNOW that I can get that money back because it is FDIC insured up to $250K (right now). And since those things are tax deferred I never even think about them. They will be there when I need them and I can sleep soundly at night.
I understand your concern. We moved to safer investments over the last few years as well. Just keep in mind, that in a high inflation time, you'll actually be losing money by keeping it in the credit union. If you are getting 2% in the credit union, but inflation is at 5%, you're losing money. Not as much as if you stuffed it under the mattress however. :)
Inflation is all relative though. It can effect people differently. I've been retired for going on 12 years now and have found that my "personal" inflationary level has dropped even as prices for food and fuel and energy have increased. Of course I have free medical coverage thru the VA, don't HAVE to drive anywhere if I don't want, and choose to live in an area with moderate temps year round so don't have excessive utilities, have low almost fixed property taxes, and don't have a family to feed, cloth or pay for so I can keep things low and not be effected by inflation very much if at all.
Thanks Spartana and herbgeek,
The CD rates at my credit union are awful. Moving some of my stock money there will give me a tiny higher percentage on them, since the amount I have there will raise, but not much.
Still though, I just don't trust the economy these days to leave it even in socially responsible mutual funds.
DH has alot more faith than I do, and he'll probably make alot more money than I will, but if something horrible happens to the stock market, he'll thank me for moving my stuff.
My older IRA CDs at the credit union had to be rolled over, and its really painful to give up those 4+ percent rates for really low ones.
An alternative is to balance investments with savings. I feel a lot better since approx. 50% of our porfolio is in CDs (all at credit unions) and the rest is in a balanced group of mutual funds, etc.
I just don't want to lose any of it. I still have a little in some other mutual funds, but if it crashes........its all gone. Things seem to be so unstable these days, to put a whole lot of trust in the stock market.
I lost almost $10,000 when I first started investing about 20years ago. My broker told me since a big bank was having problems, it was the time to buy more. Stupid me said ok, and I lost it all.
The whole world economy seems a little rocky to me now. So I'm hiding my mula under my mattress (so to speak).
I just don't want to lose any of it. I still have a little in some other mutual funds, but if it crashes........its all gone. Things seem to be so unstable these days, to put a whole lot of trust in the stock market.
I lost almost $10,000 when I first started investing about 20years ago. My broker told me since a big bank was having problems, it was the time to buy more. Stupid me said ok, and I lost it all.
The whole world economy seems a little rocky to me now. So I'm hiding my mula under my mattress (so to speak).
I think age has something to do with the amount of risk someone is willing to take. I know you said you were 10 years older than your hubby (my kind of woman!!) so you are probably more adverse to risk than he is. I was always adverse to risk money-wise but have faired well. Not as good as people who invested in the market but comfortably OK.
No, that must be someone else. DH and I are the same age........61. I guess you could say I'm too cautious and DH and not cautious enough. Hopefully we'll end up with something. :)
Life_is_Simple
4-23-11, 5:23pm
Cathy,
I know what you mean, not being a risk taker myself. First question, you can have CD-based IRAs? That's good to know. I'm looking at my credit union site, and it looks like they offer them. I might do that, when rates go up a bit.
I have a chunk of my actual IRA in a supposedly safe fund. It's money-market-like, but not really because it can lose money supposedly. I would really like to have some amount in more of a CD thing that NEVER loses. Hmmmm... Then I'd feel better about the other percentage of funds that are more risky.
Life_is_Simple
4-23-11, 5:29pm
Oh, I just read one more thing at my credit union site. It has a Bump-Up feature, where once per year you can bump up your IRA rate to the current rate. So you're really not stuck in a long-term 1% rate. Is that crazy or what? (good crazy):cool:
Hmmmm.....I'll have to ask them about that. I've been doing 12-18 months stuff for awhile (really low rate), hoping the rate would go up, but it just seems to stay the same or go down. You do get a better rate with 60 months, but I didn't want to miss an even higher rate, in case things got better before that.
Thanks for that info Life_is_Simple!
I just saw your first post Life_is_Simple,
Yes, I've had IRA CDs for quite awhile. You can't do anything shorter than a year with them though.
No, that must be someone else. DH and I are the same age........61. I guess you could say I'm too cautious and DH and not cautious enough. Hopefully we'll end up with something. :)
Oops - I remember now, that was Redfox with the younger hubby. She always says that marrying a man 10 years younger was HER retirement plan :laff:
My credit union also has a bump up feature as well as an IRA savings account where you just add in what ever you want over the year rather than locking it up in a CD. Then, when you have what ever the required amount to put it in a CD (usually a minimum of $2,000) then you can transfer that into a CD. The IRA Savings Account get really bad interest - probably 1% - but is a good way to save something tax deferred (or taxed if you want a ROTH IRA but the interest is still tax deferred) without having to do it all at once.
I'm just not a risk taker. I have several IRAs with mutual funds. But it just gives me too much angst. So I'm moving a lot of it to my Credit Union. I know it won't make me much money there, but I worry too much about losing it all in the stock market.
Cathy,
Only the dead can afford to take no financial risks. Everyone else has to deal with tax-risk, inflation-risk, market-risk, and opportunity-risk, just to name some of the more obvious ones. Hiding in CDs (and similar principal-protected instruments) might feel good emotionally, but the returns, after taxes and inflation, won’t put food on the table or pay bills for the obvious reason that such instruments never, on average and over the long haul, offer a real rate of return. Yes, you will probably get your dollars back, plus a tiny bit of interest, but those dollars won’t buy as much as they did before. Therefore, to sit in cash and cash-equivalents is to choose to lose money. That is a certainty. You will lose money.
OTOH, with a bit of effort and risk-taking, it’s possible to make decent returns from investing. E.g., like most investors, I lost money in 2008. But rather than flee markets in panic or blame anyone else, I got back in and more than recouped those losses (with my all-bond portfolio).
YTD____ $27,476____ 4.59%
2010____$99,090____ 19.9%
2009__ $125,402____ 33.6%
2008_ (-$98,315)___(-20.8%)
What you decide do about investing is up to you. But the real risk you are accepting later by avoiding investment risk now is old-age poverty. If you are comfortable with accepting that risk, then sit in CDs. OTOH, if that isn't a lifestyle you'd prefer (and 'poverty' isn't 'voluntary simplicity', but the opposite), then rethink your emotionally-driven plans. Park some of the money, because emotions can't be entirely overruled, but take some of it, as much as you'd really be willing to lose, and learn how to invest it, which is a far different thing than following the advice of a broker who doesn't have your best interests at heart.
What is the downside of investing? You're going to lose a few bucks, or $10k, or $100k. That's no biggie. It's just money, and it is easily replaced. But the upside of investing, of actually accepting genuine risk, is the rewards that come from having managed those risks in a responsible manner. In 1982, when I started investing, my total net-worth was $2,000. Today, nearly 30 years later, I have a paid-for house, car, toys, and about $623,000, which isn't a lot of money. But it's a decent buffer against old-age poverty and enough of a buffer that I can afford Voluntary Simplicity as a choice, not as a necessity.
In other words, I took the advice of Joe and Vicki to heart and got myself out of the poverty trap. Anyone can do the same provided they find the courage to overcome their fears of short-term losses. Those losses are going to happen, and they cannot be avoided. But as long as gains are bigger than losses, forward progress in made. Buying CDs as one's sole investment plan is going backwards, and it is a very bad choice for anyone to make.
Charlie
Well Charlie, we're all entitled to live the way we feel right about living. Whether it earns me money or not, I don't like being in the stockmarket......mostly because I don't like what most of the companies are doing. If the economy stablizes a bit, then maybe I would take more chances. How can you say "You might lose $100,000...that's no biggie"? You can do what you like, just as I'm doing what feels right to me. And I don't think you can say all the things you said to me, without knowing any of the rest of my situation.
Anyhow.......have fun with your stocks!
Whether it earns me money or not, I don't like being in the stock market.
Cathy,
I didn't say anything about "being in the stock market", which I'm not. My portfolio is built on bonds, which is exactly what CDs are. They are bonds. But, typically, they are poorly-paying bonds that are easily sold to naive, fear-driven investors who are "scared to lose money" but who don't realize they are, in fact, losing money when they buy them. Financial risk, of one sort or another, cannot be avoided. No matter what choices one makes, or doesn't make, inflation is eroding your purchasing-power.
That your unrealistic fears are causing you to make very bad choices is common among the financially uneducated, which is unfortunate and the reason Dominguez and Robbins wrote their book, so that people wouldn't remain the victims of their ignorance. You need to go back and reread Your Money or Your Life and to begin putting into practice some of their wisdom.
Charlie
Life_is_Simple
4-24-11, 9:58pm
That your unrealistic fears are causing you to make very bad choices is common among the financially uneducated,
Just because a person has a different viewpoint, and different risk tolerance than you, doesn't mean that they are "among the financially uneducated."
Junkman, maybe I'd be more likely to interact with you about my position/feelings if you weren't so caustic. I really don't appreciate you, a new person, coming on here and telling me I'm ignorant and you know what's best for everyone.
Knock it down a notch.
Bonds do carry risk unlike FDIC insured CDs that do not. I lost money on Lehman Brothers Bonds that were double AA rated 30 days before they went broke.
I have liked the "how well do you sleep" rule for risk taking. The other side of not assuming risk is that taking some risk may put you into retirement or FI faster, or it may affect your quality of living in retirement. I was having sleepless nights and other stresses from work, so it's sort of a trade-off. I had a finance prof who would routinely say, "Risk and return are intrinsically relate."
When I get nervous about the stock market, I think about how it has provided good returns thought a couple of world wars, a major terrorist attack, a handful of recessions, and a depression or two. Unfortunately, the last five years are enough to make most of us take a second look at risk. You have to wonder if the world is changing so fast that historic performance is no longer a good predictor of the future.
My approach has been, how much of your nest egg could you loose before your plans for the future would be unacceptably changed? I consider my stock investments as something I could loose maybe 50% or 75% of before my life would change significantly. But I think a little risk on the conservative side is worth it's prospects.
Let's all try to calm down and be civil here -- nothing to be gained by being insulting or argumentative.
Junkman, you clearly have a lot of knowledge/experience and have important points to make about different types of risk and how to build a portfolio that will do well over the long term, but it is unlikely that anyone is going to respond positively to being called ignorant. While you may find it frustrating that others don't see things the way you do, a more friendly/supportive approach may be more effective in helping them understand your point.
CathyA, you are certainly entitled to do whatever you like with your money. Many people avoid the stock or bond markets for ethical and other reasons. But I think junkman is right to point out that a "safe" investment in a low-interest-bearing account is only safe to the extent that you are not visibly losing any of the principal. But if the rate of return does not equal the rate of inflation then you are losing purchasing power, which is a kind of loss as well. You may indeed be able to keep your personal rate of inflation lower than the official inflation rate, as many on these forums do, but ultimately it will be difficult to keep up if the spread between basic inflation and your rate of return is too large.
All that being said, given the fact that your DH feels more comfortable with riskier market-based investments, your choice to put your own money into bank CDs might help to mitigate the risk on his side and give you a more balanced approach overall.
lhamo
PS: While junkman does not have many posts on the current forum, I believe he was a long-term member on the former forums.
Thanks Rogar.......what you said makes sense.
I guess I'm feeling that its a very unstable time in history. And what you said about the world changing so fast that historic performance is no longer a good predictor of the future, is exactly what I'm feeling. Plus, I'm to the age where I can't wait for years for bad spells to get better. So....at least for the immediate future, I will rest easier at night, knowing I won't lose it all. I can always reinvest in the stockmarket in the future if I feel more secure about it. But I do need to feel that what I'm investing in has the same values as I have......which sometimes is hard to find.
fidgiegirl
4-24-11, 11:09pm
Sorry I wasn't following before I made my foot-in-mouth comment on the other thread, CathyA! Hugs and I'm sure you'll do your best!
Cathy, I don't think anyone is the perfect predictor of things and you probably have as good a chance as my former broker:) You have to consider that when you buy CD's that this allows the bank to re-lend the money to anyone having their minimum qualifications regardess of values and will have a variety of businesses that will benefit. The same goes of for gov't bonds, which will help support our military budget and other possibly unsavory ends.
Oh........well then maybe under the mattress is the answer. :~)
rodeosweetheart
4-25-11, 12:39am
I am trying to remember the name of a great book I read on this, about what type of investor you are based onyour personality, and it came out before 2004, and discussed different scenarios--it wasn't the Sleep Well at Night book but there was something in there like that. Any help? I just remember it had to do with emotions and why some people would do better, say , in rental real estate than the stock market, or vice versa. It was all about figuring out who you are and what investments would be good for you based on that.
loosechickens
4-25-11, 2:01am
Junkman could probably have chosen his words more carefully, and diplomatically, but what he says about inflation, that "thief that comes in the night" is very true.
When my father came home after WWII, he kept his $5,000 paid up GI life insurance policy, because he wanted to make sure that my mother was well taken care of, and at that time, $5,000 represented a year's income for him. By the time he died, about forty years later, well, you know how far that $5,000 life insurance policy went in providing support for my mother.
Many investors are very timid about risk, and there is nothing wrong with being cautious, but you have to be informed about the various kinds and types of risks, some of which are more apparent than others. Many, especially beginner investors, feel that if their principal is protected, they are safe, but really, nothing could be further from the truth, because Junkman is correct, unless your CDs are returning in interest an amount greater than the amount of inflation, you are actually LOSING money, even if your principal remains intact, because in the end, what is money after all, but a measure of buying power? And, if, over time, your buying power is eroded by inflation, you can end up poverty stricken in old age, even if you've managed to retain every cent you invested. My mother collected my father's $5,000 GI insurance when he died, every penny of it was "safe", but that $5,000 didn't buy squat compared to what it bought when he invested in that $5,000 policy.
There really IS no "safety" in any investment, least of all in CDs, because there are other risks (often MORE serious) than loss of principal, and that more serious loss is when that principal's return is not able to keep pace with, and preferably exceed inflation.
And as was said, the bank is going to take your money that you use to buy that CD and invest it at a profit (in the market and/or in bonds, etc.) in order to give you your interest and make a profit for themselves as well. And you have no control over what they invest that money in, and it is extremely likely that they will have no compunctions as to social responsibility, when they do.
There is one place worse than CDs for long term investment of capital and that is putting it in the mattress. Because then you have NO chance of any return on the money, plus leave it vulnerable to fire, theft, etc.
There is a place for some portion of your savings to be in CDs, especially if it is money you will need within a few years, so need to know it will be available, but for long term savings, especially of a significant amount of your savings, Junkman is correct. they are a bad idea. Because there is a great deal of risk involved. It's just that that risk is not so apparent, as it is in an investment in stocks, for example, where you can SEE the loss if the price of your stock declines and you sell it.
In investment, it's best to realize that there are NO investments that are "safe", only some that are "safe" from one risk, but vulnerable to another risk, so your only safe haven is to diversify your money into various classes of investment that carry different kinds of risk, i.e., one at risk of loss of principal, another at risk for loss through the erosion of inflation, etc.
It's true that no specific mix can be good for everyone, but one kind of investment only, is not good, either. And CDs for a significant percentage of your savings, are definitely not for the long run because the return will almost always be less than the rate of inflation, which leaves you losing buying power, which is a very REAL loss, even if it isn't out there for you to see.
Edited to add: Certainly every one of us has the right to decide such things for ourselves, but just as someone might caution another about a hot stove, a nearby cliff or oncoming traffic, when someone with knowledge in an area sees someone making a very common, but erroneous assumption about an investment being free of risk, they will try to step in with advice. Perhaps, in the case of Junkman, a bit too blunt, and perhaps needing a better choice of words, but surely with good intention and a wish to warn of unseen risk.
It seems to me that Junkman is simply plainly stating the truth. And that some folks are getting riled up about connotations and tone they are overlaying on his words.
I think alot of my feelings boil down to not trusting anyone else out there. Seems like lots of people who get our money (through taxes, investments, etc.) don't seem to handle it very well. I mean look what happened to alot of folk's money in the past several years. And I also feel that the U.S. is teetering on a big fall.
And for now, this is where I feel most comfortable with some of my money. Its not a ton of money. And its with a credit union I've been with for about 35 years and I've always respected the way they handle their business.
Yes, Junkman may have been simply stating the truth about how finances run in this country, but it doesn't mean its a good fit for everyone else in every situation.
I think alot of us are here (on the simple living forum) because we don't like to be told how we should be living.
Maybe "reality" will hit me smack in the face when I'm even older, but I just have to make choices now that feel right for me.
I thought loosechickens had some excellent points. I must say that I have never regretted buying a few I-bonds. They are very safe (in a relative way, I suppose) and also eliminate the inflation risks that are mentioned.
I guess I need to look into some of the safer bonds.
loosechickens
4-25-11, 3:30pm
"Maybe "reality" will hit me smack in the face when I'm even older, but I just have to make choices now that feel right for me." (CathyA)
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And, it's right that we should make our own choices. But, and this is a BIG but, those choices should be informed by factual information, an understanding that not all risks are readily apparent, which doesn't make them any less real, and taking the responsibility to learn what we need to learn to make our choices with full understanding of the ramifications.
Someone certainly can decide to keep their life savings in a CD. But if they are doing so because they think it is "risk free", they are deluding themselves, because there are huge risks over time in taking that path. Even knowing those risks, folks may still make that choice, but most who make that choice do so out of fear of "losing principal" without any understanding that over time, inflation will steal the buying power of that principal inexorably, quietly, but effectively, even while the person feels their money is perfectly "safe".
All of us need to spend as much time and energy understanding how money works, how investments work, the risks and rewards of each type of investment, and the wisdom of never putting all one's eggs in a single basket, no matter WHAT that basket is.
And learning that there are NO risk free investments, only varying degrees of different types of risk, is the first lesson. Because every single decision one can make about where and how to invest (or store in the mattress) their money carries risk. Sometimes lots of risks, even in the investments that look safest on the surface.
Hopefully, none of us will get our feelings ruffled when people challenge our assumptions, because there is much to be learned sometimes, even from those who ruffle them badly. And there is not a lot of reason to live simply, be frugal, and then literally throw away our hard earned money because we don't understand the risks we are taking.
I'm hoping that these threads will lead us to kind of an Investment 101 that members can use in educating themselves a bit. Because we'll seldom make decisions that will affect our futures more than how we handle savings and investments, once we've managed to practice simple living and get out of debt and actually HAVE money to save and invest. Far too many make emotional decisions, often based on incomplete or erroneous information, or lack of understanding of risks, and maybe we can help each other to get better at these decisions, just as we help each other get better about decisions on a host of other subjects here.
I must say that I have never regretted buying a few I-bonds. They are very safe (in a relative way, I suppose) and also eliminate the inflation risks that are mentioned.
Roger,
I-bonds do not eliminate the risk of inflation. They do help to mitigate it by being, in effect, a way to short the CPI, which is a very imperfect measure of inflation. In other words, unless one is buying exactly the same basket of goods and services that the CPI is based on, then one's personal experience of inflation will be different and, most likely, higher. Also, for all practical purposes, I-bonds are "toy securities" that are fun to play with, but they cannot be a serious part of one's portfolio just because of their typically very low returns and the limited quantities in which they can be purchased, $10k/year.
If one's intention is to use bonds to hedge inflation, the far better strategy is to buy bonds that offer serious returns such as became available as markets came off their 2009 lows. Lots of good-enough quality industrials became available: Alcoa, Alltel, Anheuser, Caterpillar, Dow Chem, GE, etc, right on down the alphabet. That was a scary time to be buying, because no one knew that the market wouldn't go lower. But discounts were being created that a value investor had to respond to, and anyone who did a prudent amount of buying was rewarded for taking the risk. My average current-yield for the bonds I bought in that period is 9.0% and the YTM is 11.6%. That's not the best of returns, but it's acceptable for a basket of bonds whose average credit-quality is mid-tier invest-grade. But more importantly, after taxes and inflation, I'm making a real rate of return. In other words, I'm moving purchasing-power forward to the future against the time when I might need that money.
As the more experience hands in this forum have suggested, anyone can invest however they want to. It's their money to lose. But why do so? Why waste that resource when a bit of thinking about the game can create profits instead? That's all investing is. It's just a game. One day you lose a bit. One day you win a bit. But if your strategy is sound, your money grows, on average and over the long haul, against the time when it might be needed. So the real reason why it is worth learning how to invest is the insurance function it serves. You can pull money out of markets if you need to and, meanwhile, you sleep well at night for knowing you have good financial survival skills.
Charlie
Charlie, I consider I-bonds a good alternative to CD's and money markets when interest rates are low. For those who are risk averse and want an inflation hedge as a part of their investments I think they are good. They are definately not what I would weigh heavily and the purchase limits pretty much prohibit that anyway. But a person can pick up their limit for a few years and have a good sum invested in them and also benefit from a laddering effect. I also like having some TIPS in tax defered accounts and I think this is consistent with some of the core investment books.
I might guess that at the same time you picked up the heavily discounted bonds, your returns in the same company's stocks and may have had a return of maybe 20% or more. There is a reason that these stock and bond returns were so good. They carried risk. As you said, these were scary times. Corporate bonds are not any more of an inflation hedge than stocks. You just can't get away with the old saying that risk and return are intrinsically related. There just isn't a free ride. You also have to consider that interest income is probably going to be taxed at a higher rate than capital gains. When I want to assume risk, I buy equities. Also, I-bonds are tax deferred and exempt from state taxes if I recall correctly. A small advantage, but real.
You have some good bond knowledge and have brought up some excellent points. I would like to study up and include more corporate bonds in my portfolio, but they are not the only fish in the sea.
And I also feel that the U.S. is teetering on a big fall.
I feel the same, CathyA. My shrewd financial advisor pulled me out of the market in July of 2008, just before my life savings could lose half their value. She sat me down and gave me the education of a lifetime. We have been what many folks here would probably consider "too cautious" since then, now knowing what I do about the size and nature of the derivatives market, the shadow banking industry, inflationary/deflationary concerns, the looming energy catastrophe, and the extreme UNlikelihood that any substantive reform will ever take place. But our capital has been preserved and has grown slowly and steadily, and I sleep well at night.
A little education is a good thing. Know your options before you decide against them. I've learned some things from this thread that are very valuable.
But for what it's worth, I agree with you. Some dark days are ahead.
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