Down!

One of my favorite movies is Albert Brooks’ “Lost in America.” There’s a scene midway in the film when he wakes up in a Las Vegas hotel room only to find that his wife (played by Julie Hagerty) is downstairs in the casino losing all of their nest egg. Wearing his bathrobe, Brooks heads down to find his wife at the roulette wheel losing terrifically. When he asks the casino floor manager,”how down is she?,” he is emphatically told “Down!”

Down is indeed the operative word as we start the new year. Gas prices are down, which I always thought was a good thing until I was recently reminded that more people using their cars also puts additional greenhouse gases into the air. This concerns me greatly, and I’m going to convene a summit of my closest friends to discuss it on an upcoming road trip to Disney World.

What’s also down are investments. I watched the stock market for all of December hoping for that illusive “Santa Claus Rally” to end the year on a high note. But as we enter the new year, stock indices are continuing on a downward cascade with valuations hitting notes even lower than the ones Melvin Franklin sang on all those great Temptations songs.

My reason for watching the market was to make changes in my now dormant 401(k). When I was working, I generally rebalanced my funds at the end of a calendar year, as recommended by financial advisors. Since retiring, though, I’ve only tinkered with it slightly, allowing it to remain pretty much as it was on my last day of work in 2014. However, the Federal Reserve served notice last month that they will begin raising interest rates again. That was my metaphorical kick in the rear to motivate and reconsider earlier 401(k) fund decisions I had made.

Currently I have an 80/20% split between stock and bond funds. During the recession, I stayed aggressive and maintained a majority of my investment allocation in a stock fund that mimicked the Standard and Poors 500 index. That strategy paid off as the economy slowly improved and my bottom line followed the S&P’s rise. A smaller portion of that 80% was separately invested evenly across two additional indices, one for small cap U.S. companies and another that focuses on foreign corporations.

But with those interest rates rising, along with undeniable fact that I am no longer contributing to my 401(k), the smart move is to rebalance those funds. The earlier allocation strategy rewarded me, and now is the appropriate time to lessen my exposure to stocks and transfer slightly more of my nest egg into the bond funds. However, to quote the disclaimer found on every mutual fund, “Past performance is not necessarily indicative of future results.” Coincidentally, I say the same thing to Gorgeous as we get into bed each night.

Oh, but those pesky Chinese are once again interrupting my mojo (just to be clear here, I’m talking about my money).

Financial markets around the world, including the U.S. exchanges, are being rattled by the downward fluctuation of the Chinese currency. The stock market in Beijing was so unnerved the other day that it actually closed up shop for good after only 14 minutes of trading! Ha — this western-style economy thing isn’t so easy after all, is it?

Curiously, European economies are more directly affected by these sudden movements in China than we are here in the U.S. Nevertheless, Wall Street traders aren’t exactly beacons of stoic and brave fortitude. They can just as easily get tripped up by a cocoa bean shortage in Brazil, a glut of precious metals in India, and the expression on Angela Merkel’s face at any given time. Psychologists long ago gave up trying to figure out the decision-making processes of these creatures.

So as the stock market slides, I will stay in a holding pattern with regard to the rebalancing of my funds. I am still too young to begin any distribution from my 401(k) without incurring a penalty from the IRS, and my intention anyway is to not begin those withdrawals till I turn 65 (seven years from now). I am fortunately able to ride out upcoming market gyrations.

Even so, I do hope for a return to partly sunny financial skies in 2016 to last long enough for me to rebalance to a more conservative distribution. I want to introduce more bond exposure to try and cushion against future volatility. I could do this now, of course, but I’d rather wait till valuations return for a bit. I have the gift of time thanks to early retirement and those IRS penalties that keep me on the straight and narrow.

Earlier last year I wrote a post expressing my dissatisfaction with how my former employer (the federal government) was handling a specific fund unique to its 401(k) plan. I said at the time that I was irked enough to transfer my account to a private mutual fund and convert to an IRA invested in low-cost index funds. My posting so concerned a former co-worker that she took the time to write and convey to me her uncertainties about my idea (Hi, J.). Her concerns were sincere and valid.

Fortunately Congress never went through with its proposal to monkey with that fund, and I am therefore happily staying put for the time being. I do suspect that similar attempts will be made in the future, though. I will need to again be watchful.

While I have a luxury of a time horizon with my retirement funds, I am well aware that millions of others struggle as they contend with protecting their resources in a volatile economy. It is stressful worrying if you have enough money and also not to outlive your savings. Constant jabbering from TV and radio talking heads, and, ‘er, certain bloggers, doesn’t really help when all you want is not to focus on the negative.

Just remember that what goes down eventually goes back up. And sadly this will also include the price of gas. My car comfortably fits four. Let me know when you want to hit the road to Orlando and visit Mickey, Minnie, and Donald (the duck, not the jerk).  I’ll save you a seat. What my environmentalist friends don’t know won’t hurt ’em.

Until next time…