Father wrote:From what I am hearing, the stock market is currently high as it is being falsely pushed up by the printing of money. At this rate, it cannot sustain itself and is due for a correction of a drop of 90% or so. I am actually thinking of taking the early withdrawal hit because if it does drop I will probably never get to see it increase back up to what it is now. Also why domestic and not foreign.
I can't blame him as this type of fear is too common in media. I think some of it is from these sort of sources:
http://theeconomiccollapseblog.com/arch ... is-soaring
Newmax Aftershock advertisement
I fired off a response in the meantime in hopes that he doesn't do something rash.
He doesn't seem too into intense reading or research. One of the more concise thing I think I can share with him is: http://www.bogleheads.org/wiki/Boglehea ... philosophy
Is there anywhere else I could point him to help him save what retirement funds he has? (At this time, I don't know what available funds he has and how much)
For reference, this is what I fired back:
I wrote:Markets don't really get falsly pushed-up, per se, by printing money. Printing money is a source of inflation and the value (and earnings) can seem a bit higher than they actually are because of inflation. As such, inflation is a form of risk and must be deducted from your returns to get "real returns". Let's say my stock returns over 10 years is 11% and inflation was 2% -- my real return was 9%.
I think a speculator talking about a market correction/drop of 90% is a extremely silly. I know the report you are talking about -- it is commonly cold "aftershock survival summit". If the market were to drop THAT much we are in for worse times than the Great Depression and things will globally collapse as markets are so connected. My point: little to nothing could be done with retirement money to mitigate this.
90% aside, a drop could happen and really isn't forecast-able. You are correct that if a larger drop happens, you may not (or may... who knows) be able to recover from drop before you need it. This however, can be mitigated through diversification of all assets and increasing bond holdings while lowering stock holdings.
"Also why domestic and not foreign."
I am not sure what this is referring to specifically.
My final portfolio looks something like:
56% Domestic Stock
24% International Stock
20% Bond
That is diversified over 3000 US companies, 6000 foreign companies, and 5000 bonds.
Whatever you do, don't sell what you have and take that hit... please talk things over with me first before you make that kind of decision.
Update: I just spent an hour on the phone discussing this among other things. He talked of a lot of rumors from talking heads that concern them, for instance, CNBC - Germany Wants Its Gold Back—Should You Worry?.
I also learned that a sizeable percentage of his 401k is in a single stock with a company he used to work for. When I told him that I saw that as risk to have reasonable concern over, he replied stating that it was big/global/lack of concern. I brought up Enron (big/global) and he started to grasp why diversification helps mitigate risk.
Some of the 401k is in some sort of other mutual fund - he has no idea what holdings -- stock/balanced/etc. Some of it was transferred into gold some years back, but still within the 401k/retirement structure.
Without prompting from me, he stated that he would like to send me his 401k information for me to have a look. I shared with him the concerns that many have expressed here with regards to advising family/friends. I told him that I'd be happy to give it a look, but that he'd have to come to decisions of his own accord. Additionally, I requested that he send me what funds he has available to invest in.