Prep for a market turn... Should I establish Money market accounts for my ROTH IRAs?

[mrpaseo]

Not trying to get to much into the topic of the economy but I am wondering if establishing a Money market account in each of my retirement fund companies is a good idea. My thought is to move the money out of the mutual fund that is crashing and into a money market fund that will at least hold the value where it is at.

Am I thinking to much into this?

Thanks

[kork13]

That depends... How much interest do you have in potentially gambling away your retirement savings?

You've been around here for long enough to know that trying to time the market almost never works in your favor. The tendency is to buy high and sell low. If I remember correctly, you're in you're early 30's, right? Why are the totally NORMAL gyrations of the markets causing you so much concern right now? There are 25-30 years between now and when you're going to need access to your retirement money. That's alot of time for the up-and-down cycles of the market to even out (and most likely to your benefit).

Bottom line, I think you're looking at this way too emotionally. If you feel like you need to re-evaluate how your portfolio is allocated in the long term, fine -- do that. But I think it would be a bad idea to try to decide when the time is right to liquidate your invested holdings in your retirement account in order to "hold value." In doing so, you open yourself up to missing out on alot of gains and dividends that may occur in the interim while you convince yourself that "the time is right" to get back into the market. So this is me strongly recommending that you take a step back, evaluate your line of thinking, and simply holding the course that you've been following for however many years previous you've been saving up for your retirement.

[disneysteve]

I totally agree with kork's response. What you are proposing is market timing and nothing else. If you are investing for the long term (more than 5-10 years), you should be ADDING to your investments on a regular basis and taking advantage of those down turns to load up on more shares. That isn't the time to be selling off your holdings and hiding in the corner with a pile of cash.

Literally right before I opened this thread, I had just sent $1,000 to Vanguard ($500 each for my wife and I) to add to our 2013 Roth contributions and no, I did not put it in a money market account. I invested it.

[mrpaseo]

Thank you both, I appreciate your honest no holding back response as I believe that is what I needed...lol.

I am 40 and currently retired (Out of the Army) with no plans to return to work. We currently put back $200 every Friday ($100 in his, $100 in Hers ROTH IRA and we have her 401k at 25% at the moment (Just lowered it from 50% to catch up on a few bills), the company patched 4%.

As it stands, we have planned to max out both ROTH IRAs this year and are planning on $12,000 into the 401k (Not counting the match).

As for emotional, yes, I am concerned about the bottom dropping out of the market and our retirement portfolio dropping to the floor. I am looking forward to investing on the tips while everything is on sale...lol.

We figure the best dollar cost average is weekly purchases.

Thank you once again.

[~bs]

you will incur transaction costs buying into money market funds that won't return much. It really depends on how much money you have available to determine if this is going to make sense. If you're moving only 5k, you'd be better off leaving it as cash than buying a money market because it will take a while for you to recoup the transaction fee cost.

[mrpaseo]

you will incur transaction costs buying into money market funds that won't return much. It really depends on how much money you have available to determine if this is going to make sense. If you're moving only 5k, you'd be better off leaving it as cash than buying a money market because it will take a while for you to recoup the transaction fee cost.

I didn't think there would be a transaction fee if I am keeping it in the same fund manager (Fidelity for example).

Thank you for your response.

[disneysteve]

you will incur transaction costs buying into money market funds that won't return much. It really depends on how much money you have available to determine if this is going to make sense. If you're moving only 5k, you'd be better off leaving it as cash than buying a money market because it will take a while for you to recoup the transaction fee cost.

No transaction cost if staying at the same place, like Vanguard or Fidelity. And no commission to invest in a money market fund generally.

Now all of that said, I DO have a money market fund in my Roth account. I often put my contribution in as a lump sum, park it in the money market, and then invest it over time from there. I'm not doing it to time the market but rather as dollar cost averaging.

[~bs]

No transaction cost if staying at the same place, like Vanguard or Fidelity. And no commission to invest in a money market fund generally.

Now all of that said, I DO have a money market fund in my Roth account. I often put my contribution in as a lump sum, park it in the money market, and then invest it over time from there. I'm not doing it to time the market but rather as dollar cost averaging.

well, if there's no transaction fees at all (other than the fund fees), then I don't see why not.

Edit: for fun, I decided to take a look at what some fidelity money market funds are yielding. These are some crazy low yields, lower than most online savings accounts yielding .7%/year.


1 Yr 3 Yr 5 Yr 10 Yr Life of Fund*
Fidelity® Cash Reserves 0.01% 0.03% 0.52% 1.79% 5.46%
Fidelity® Institutional Money Market Prime Money Market Portfolio - CL I 0.09% 0.13% 0.59% 1.92% 3.69%

[mrpaseo]

well, if there's no transaction fees at all (other than the fund fees), then I don't see why not.

Edit: for fun, I decided to take a look at what some fidelity money market funds are yielding. These are some crazy low yields, lower than most online savings accounts yielding .7%/year.


1 Yr 3 Yr 5 Yr 10 Yr Life of Fund*
Fidelity® Cash Reserves 0.01% 0.03% 0.52% 1.79% 5.46%
Fidelity® Institutional Money Market Prime Money Market Portfolio - CL I 0.09% 0.13% 0.59% 1.92% 3.69%

The thought entered my mind to stave off the loss of what we have built, not to earn better return. I just feel that the DOW is going to tank in the near future and figured it best to secure it somehow. That said, I do have 25 years before I need it so I have time to recover (I think).

Thanks.

[DRILLINDK]

Please read through this:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

I use the Bogglehead three fund portfolio like they recommend:

Vanguard Total Stock Market (VTSMX)
Vanguard Total International (VGTSX)
Vanguard Total Bond Market (VBMFX)

With 25 years until retirement, I wouldn't worry about corrections. I would welcome them. Dollar cost averaging is the way to go in the long run 10+ year or more. I pretty much do what DisneySteve does. Move my $$$ in a Vanguard Money Market account and drip my funds into the three funds above over a period of time. There's no transaction fees with Vanguard so do it as much as you want.

You cannot time the market and you will lose doing so. Get set up with automatic investments every Friday or whatever and forgot about it for the next decade or so

[mrpaseo]

Great advice, I appreciate it and actually will look more into the Bogglehead three fund portfolio. Recently we had our retirement portfolio looked at and were told that it looks good for our goals.

What are your opinions about investing for use in 10 years (When we are about 50). Do you think the Bogglehead three fund portfolio would offer a good return in that time frame?

Thanks.

[bjl584]

Not trying to get to much into the topic of the economy but I am wondering if establishing a Money market account in each of my retirement fund companies is a good idea. My thought is to move the money out of the mutual fund that is crashing and into a money market fund that will at least hold the value where it is at.

Am I thinking to much into this?

Thanks

Timing the market is basically impossible, but I think that you should definitely have some cash on hand in your Roth and in your taxable account (if you have one.)

It's a good practice to keep a few arrows in the quiver just in case something pops up that is a screaming buy.

[~bs]

I am a fan of keeping some cash on hand, as opportunities does present itself when there's blood running in the street.