From: "Andy" 
Newsgroups: misc.invest.financial-plan
Subject: Re: Wisdom of Retirement planning with 401ks and IRAs
Date: Thu, 2 Feb 2006 08:30:30 -0600
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daben wrote:

>BUT, it almost seems to me, that with
> 401ks at least, one should be as safe as possible.  Take the employer
> match, take the immediate tax break and put the money in bonds or cds.
> If all one does is this, and only invests to the employer match, then
> one makes 100% gain on their money and at least if there is a big
> correction then they have the money they started with.  I here the
> prospects of the average market over the last 50 yrs, etc, but most
> people invest in retirement for 20-30 years.  During this time there
> will probably be one big correction where people will get cold feet and
> bail -- and not follow the adage of constant investing.  Does anyone
> care to comment on my converns / point out where I am thinking wrongly?

No one can predict the future.  The stock market might consistently
provide an annual return of 10% for the next 20 years, or it might just
do that until the day you turn 65, and then it might drop 50% and stay
down for 16 years, like the Nikkei index in Japan has starting in 1990
through today. Investing in stocks undeniably has an element of risk.

However, investing in stocks is the only way to have a chance of
getting a return significantly greater than inflation.  The best money
market accounts and CDs are paying just barely better than the
inflation rate.  To make matters worse, most 401k plans do not have
much to offer in the way of high rate money market funds, so you most
likely will be getting a return of less than the rate of inflation in
the money market option in your 401 plan.

The common advice these days is for young people is to have much more
than 50% of your retirements savings in stocks because stocks offer the
best long term return based on historical data.  However, it sounds
like you are a risk adverse person; it pains you to think of your
portfolio suddenly losing half its value.  For you, I would recommend
putting half of your retirement savings in the stock market and half in
high rate money market funds if available, or short term bond funds if
no high rate money market fund is available (long term bonds are not
paying a whole lot more than money market these days, and they will
lose value when interest rates rise).  This way you will get some
return from the stock market, but you will have enough in non-volatile
investments that you won't lose sleep over every twist and turn of the
market.

Andy