I read in the Kiplinger magazine that there is a 25% chance of recession for 2008. I just increased my 401K to 12% from 6%. Does that mean trouble? What kind of funds should one be looking at during the time of recession? Also I plan to be very careful in my spendings and increase my EF.
What do you guys plan to do in the probability that there will be a recession?
Recession and 401K
December 28th, 2007 at 02:47 pm
December 28th, 2007 at 03:31 pm 1198855889
For your 401(k) startegy;
1) come up with an allocation startegy (International , small cap, large cap, etc)
2)Please your money in funds with low fees (preferably index funds)
3) review the allocation % each year and adjust.
Step 3 is important. I was looking at my allocations and noticed that my international allocation has really increased this year, so next year, I'll be contributing less to that and more to my US stock funds.
December 28th, 2007 at 03:54 pm 1198857244
December 28th, 2007 at 05:55 pm 1198864533
December 28th, 2007 at 06:49 pm 1198867775
Er, what they said.
Please remember that, during a downturn, new NAVs (which I'll call "shares" here) are cheaper to buy, where as during a bull run, new shares are more expensive to buy.
So, while the prices per share may fluctuate, by dollar cost averaging, you can smooth out the volatility over time.
I'm betting that there will be a recession. Ultimately, the market is cyclical, and recessions happen. However, for an investor with cash to invest, it can be a great time for buying. And that's more or less what I have in mind.
The only time you want to worry about a recession is when you are planning to retire soon and/or capital preservation is your top priority.
December 29th, 2007 at 03:44 am 1198899891
I do invest in some individual stocks that produce a dividend. Right now Coke (KO) and 3M are doing very, very well. They probably will still do fairly well during a recession - people still buy soda and Post-It notes. iPhones? Not so much.
December 29th, 2007 at 04:10 pm 1198944638
As for picking stocks and funds.... Yeah, that's a tricky one there. I think, even now, I am struggling to get a good grasp of that. Lots of valuation methods to learn....
Accord to Warren Buffet, Coke is something that will be around for a long time, and he may have a point. I remember reading a page called, "Foods around the world", and you can see that, for many people in other countries (not just ours), Coke isn't just a sweet, fizzy drink. It's a food staple! Why, I'm not sure. Maybe the quality of water is poor or something. Whatever, Warren Buffet believes that foreign countries still haven't hit their critical mass yet in terms of being introduced to this drink, and as such, has a very large stake of shareholding with Coke.
The only downside to Coke, for me, is that the stock has been hyped so much that it may be over-valued in my opinion. I can't blame Mr. Buffet for doing the dog & pony show AFTER he has already bought his share. However, because it is viewed as a staple for some, I do believe it is at least recession proof with a good chance of increasing in value into the future.
An alternative with a similar track record would be PepsiCo. Yeah, it directly competes with Coke, but I like Gatorade....
I'm not recommending to buy either one or anything. Just chatting mostly.
But yeah, I've been looking into staples myself, not just to be recession-resistant, but also looking for that good bargain to fair market value. The only problem is that almost at every turn, you find out somebody is already reporting on it, and zoom, there goes the bargain. Or worse, they don't report on it, and you think you might be crazy why you think you see it but nobody seems to be reporting it. You wonder then if it's a true bargain or more of a value trap.
At this point, I THINK there are indeed large caps that, by nature of their size, will move in some direction regardless of how much we speculate (a.k.a. ExxonMobile ticking up) or we will have to continue our search elsewhere. But again, stocking picking and valuations is still something that I am learning to get a good grasp of, so I may feel differently tomorrow.
Oh, finally, Apple. It was one of those things that I WISH I was able to buy when I first heard rumblings about the iPhone. I really did say to myself, "Self, this thing is going to be huge. They're on to something that I wish somebody would make." But by now, I would most definitely get ready to sell. It's still got a year or two going for them, and I would ride it out until about a year after they introduce the updated, 3G iPhone. Then sell it.
March 1st, 2019 at 10:07 am 1551434874