OT. OT. I'm amazed and in awe of how some people arrange their financial affairs and how they live a current lifestyle with - apparently - not much concern for the future.
My wife asked me what she might tell an acquaintance who is trying to improve her financial situation. How difficult to do when one spouse is cautious with money (the acquaintance) while the husband's attitude seems to be "make big money, spend big money". Apparently the husband has "all the toys", and the college age kids are well pampered. How can someone like this improve her financial future? Well, if the husband isn't about to change or won't, it would have to be with the wife. My opinion (without having any facts) is that there's no way she could earn enough in the next few years on investments she might make that would be more than what she would save if she just stopped pampering her kids, if she attempted to change her work schedule or job to reduce tremendous commute miles, or otherwise if she just saved more and spent less. (Dollars from savings here would be more than she could make initially from investing. Weren't we all in that boat when we started?)
Anyway, right now, here's a person, not earning big money by any means, who has her entire IRA and IRA savings in the company savings account which pays 2.4%. I'm horrified that a family that might be so free spending is so ultra something - conservative? - to keep an entire IRA in a savings account. Of course timing is everything, and if WW3 starts in the Middle East and the market falls 5000 points next week, this woman will be better off than many - maybe including me. Still, you'd expect someone to diversify a little and bet a little either on SOME USA or SOME foreign stocks.
That woman imo should be told to GET OUT OF that BANK ACCOUNT which only yields 2.4%!!! OTOH, I suggested to my wife, that such a person who apparently knows zilch about stocks or bonds, and who apparently has been saving money her current way for years (at least she is putting money aside!) would, imo never listen to such advice. (There's academic evidence that when committing money to the stock market a person is better committing all that money at once rather than piecemeal. That's risky advice to be giving from my perspective though. I've got no intention of suggesting to my wife that she tell such a bank account saver to put all her money in the market and soon. That's all I would need: WW3 starts next month, or oil gets disrupted and the market crashes and this woman and her husband who listened to me and put all their money in a lump sum into the stock market come looking for me and my wife with a shotgun. -g-)
A somewhat reasonable alternative that might be "reachable" for this woman is to tell her that that's enough already for a bank savings account, so cease contributing her 15% deduction or whatever it is to her bank, and instead make future contributions to a 3 or 4 star Morningstar fund that's available to her. My recommendation being a large cap value fund. There are a couple she can select from her company's plan. Ain't going to be gangbusters for her, but over time it should do better than a bank savings rate. (15% of a low salary averaged in over year isn't an absolute large dollar amount or very risky (so I believe) - although it might be considered such to this woman. (Ooooh stocks, gambling, risky.) Still it is peanuts compared to money apparently spent by husband.) Furthermore, it's action she can easily take. (i.e just do it. Press a few buttons on the computer.) She won't have to read pages and pages of investment stuff or get confusing opinions to determine if she should diversify among foreign or domestic or bet more on small cap vs. large cap. or have something in gold or something in emerging markets. Just take the initial step and start putting money in the large cap value fund or maybe one other that holds companies she might actually have heard of. (Dodge and Cox fund would be an available choice for her.) Over time, she can diversify if she comes to learn more about the investment choices in her IRA and her goals. Or gain confidence to transfer money out from her bank account to better risk/reward plays.
Just curious what you guys' opinions here might be. |
