Why Are You Investing Into a 401 K Plan?

Fall RoadWhy Are You Investing Into a 401 K Plan?

Nationwide has a commercial about a couple who are putting off retirement planning.  Every time the subject comes up, they come up with an off the wall reason why they can’t do it.  From cleaning out the gutters to folding laundry, they always had some thing more “important.” They would go as far as create problems to fix it such as the husband throwing his keys over into the bushes so he had to look for them.

Obviously, the commercial is taking the message of retirement planning avoidance to the extreme.  However, it does make a good point.  The vast majority of people today have no idea if they are on track, behind the curve, or ahead of the curve when it comes to their retirement goals.

If you ask the average investor why they are investing in a 401 K plan, most would respond for retirement.   When I get that answer I always respond with “No – what specifically are the reasons that you are investing into a 401 K plan?”  I am looking for an answer more along the lines of – well, I am investing into my 401 K plan so that at age 65 I can retire and live off of $6,000 a month at least until age 90 and I am on track!

Now there is a crystal clear goal oriented answer.

So it begs the question, why don’t most people have a plan?  If it is so important, why not take the steps?

Through almost 25 years of working with people I can come up with a few reasons.  First, I don’t think that people want to know.  Avoidance is a good process if you don’t want the stress of getting some unpleasant news.  I see this time and time again.  I will have people come into my office and tell me that they are behind in their retirement goals.  My reply is how do you know?  It is nothing more than a hunch.  They don’t know because they don’t have established goals.

I would suggest that not knowing ends up being the biggest weakness in your financial life.  By knowing, you become a better decision maker when it comes risk.  You have less stress because you are confidently working a plan.

Then there is the other reason.  Why start now?  I am so far behind there is no way I am going to be able to retire.  It is a shame that a person gives up on the dream of retirement without even trying.  I have never met someone that we couldn’t form some type of a plan.  The key is getting creative.

“Know where you are, know where you are going.” 

Don’t live your life like a nationwide commercial.  Get a plan and give a specific “why” to your investing and saving.


Bob Brooks is Financial Advisor and host of the Prudent Money Radio Show.  For a retirement consultation, contact Judy Parrish to arrange an introductory phone call with Bob at Judy@prudentmoney.com.

The Mistake Investors Make When Rolling Over a 401 K Plan

The Key Question To Answer When Picking A Financial AdvisorThe Mistake Investors Make When Rolling Over a 401 K plan

By Bob Brooks, Host of the Prudent Money Radio Show

If you get laid off or leave a company, what is the first thing you do? You clean out your desk and box up all of your personal belongings. What about that retirement account? There is nothing more personal and valuable than that 401 K plan. It needs to go with you too!

You need to be aware of something. There is a common mistake that many investors make when moving 401 K money. You want to avoid the parallel move. A parallel move occurs when you exchange one retirement plan for another, pay fees and commissions, and not gain an advantage for making the move.

There has to be a compelling reason to make the move. Make sure that you are receiving value and gaining an advantage for the money you are paying in fees. You have to ask yourself an important question. What advantage are you getting for moving that 401 K plan?

You Don’t Want to Miss the Opportunity!

Once you are free to move a 401 K plan with a past employer you have a real opportunity.  First, you have the opportunity to move what probably represents the bulk of your retirement dollars to a new plan where you have many more available options.  Most 401 K plans are limited in options. Second, you have the opportunity to consolidate that 401 k plan with your other retirement options creating one big retirement strategy.

Does it ever make sense to keep it in an old 401 K plan?

What I have written thus far references moving a 401 K plan to an advisor directed plan. What if you are comfortable managing it yourself?  Having said that, I would still move it to a self-directed retirement account and increase your investment options.

If you have an abandoned 401 K plan and need some help, make a decision to email me and take some action because the last thing you want is your retirement account out of sight and out of mind.

Bob Brooks is a registered investment advisor and host of the Prudent Money Radio Show. Bob specializes in retirement planning and investment and managing retirement accounts.

Disney and the Frivolous 401 K Lawsuit

maxresdefault (1)Disney and the Frivolous 401 K Lawsuit

Disney is getting sued by an employee over the performance of one of the mutual funds in the company’s 401 K plan. The Sequoia Fund lost 2 billion dollars after one of the fund’s larger holding tanked.  Here is what the lawsuit claims:

“The committee ‘clearly knew or should have known that the Sequoia Fund was an imprudent investment,’ the lawsuit said. ‘A prudent fiduciary would have recognized that….the Plan’s significant investment of employees’ retirement savings in the Sequoia Fund would inevitably result in devastating losses to the Plan and, consequently, to the Plan’s Participants’.”

If the committee had a crystal ball that worked and they refused to use it, then he might have a case.  The judge should fine this employee for bad judgment.  If you look at Morningstar, you will find that the fund is down -12.03% year to date.  That is after the stock tanked.  The 15 year track record beats the S&P 500.

Here are some “take-aways”

  • As a mutual fund investor, at any given time, the investor should be able to withstand a loss of 15 to 20% because it does happen.
  • There was nothing about the fund that created a red flag prior to the loss.  In fact, their number one holding is Berkshire Hathaway – you know Warren Buffett’s Company?  I am still looking for the red flag.
  • I think that the most irritating thing about this lawsuit is personal responsibility. Please take some responsibility for your choices. Once again, without a crystal ball that works, a 401 K committee is going to have a tough time predicting the future. It would be different MAYBE if the company approved a mutual fund that was investing in some exotic international Zimbabwe Company that is run by tribes who make products by hand. 

As an investor, you are responsible for the funds you chose.  The committee didn’t hold a gun to the employee’s head and make them chose that fund.

  • Finally, this would set a very bad precedent in the event that this case gets traction. These kinds of lawsuits would be coming out of the woodworks.

This is nothing more than a frivolous lawsuit that any respectable judge should not even entertain.  This is about taking personal responsibility as an investor.

Bob Brooks is the host of the Prudent Money Radio Show and the president of Prudent Money Financial Services. Through his firm, he invests and manages investments for his clientele. To contact Bob, you can email Judy at Judy@prudentmoney.com to set a time.


Record Low Interest Rates – Lowest Since 3000 BC?

Are you invested the right wayRecord Low Interest Rates – Lowest Since 3000 BC?

Interest rates set a record low back in 2012.  Since then they have been up and down.  Here is what the chart looks like:


This is a chart that tracks the interest rate for the 10-year treasury bond. Since November 2015, interest rates have been almost crashing. They drop from 2.37% to a record low 1.33% this week. The decline as of late has been dramatic. Of course, Great Britain leaving the EU had something to do with it.

Typically, you don’t see these types of declines unless there is a crisis emerging. Today, there is not a crisis that we know of. Does the bond and interest rate markets know something that we don’t know?

People buy treasury bonds as a safety net in times of crisis. When bond prices go up interest rates go down. There just might be something boiling under the surface.

Now take a look at this chart:


Today’s interest rates are the lowest dating back to 3000 Before Christ.  Incidentally, you can go to this article to see how they came up with these numbers.

What are the conclusions?

1)      We are incredibly out of balance.  Having interest rates at historical record lows is not healthy nor is it natural.

2)     We can’t afford for interest rates to start rising.  Remember we have almost record credit card at almost a trillion dollars, record student loan debt that is over 1.3 trillion dollars, and record automobile debt that has exceeded 1 trillion dollars.  Oh and I almost forgot….19 trillion plus dollars of US debt.  Rising interest rates increase the cost of debt for everyone.  Plus I doubt our economy is strong enough to handle a rise in interest rates.

3)     We are getting closer and closer to NEGATIVE interest rates.  I can’t even get my arms wrapped around that one.  That is truly unprecedented.

One thing we can probably assign a low probability to is interest rates just staying put.  If they go up dramatically, we are in a bad position.  If they go negative, we are in a bad position.

I have said for a long time to watch interest rates.  They are the signal of things to come.  Could they be signaling the next crisis?

Bob Brooks is the host of the Prudent Money Radio Show and the president of Prudent Money Financial Services. Through his firm, he invests and manages investments for his clientele. To contact Bob, you can email Judy at Judy@prudentmoney.com to set a time.


Did the Market Crash on Friday?

This is Not a Good Sign for the MarketDid the Market Crash on Friday?

First, let me make it very clear.  The market did not crash on Friday. Pop Culture Finance and the media (namely CNBC) are proclaiming that the market crashed. They referred to the decline as Black Friday. That is the most absurd and irresponsible reporting that could be put in print.  Furthermore, they are claiming this equally absurd statement:

“Worldwide markets hemorrhaged more than $2 trillion in paper wealth on Friday, according to data from S&P Global, the worst on record. For context, that figure eclipsed the whipsaw trading sessions of the 2008 financial crisis, according to S&P analyst Howard Silverblatt.

The prior one day sell-off record was $1.9 trillion back in September of 2008, Silverblatt noted. According to S&P’s Broad Market Index, combined market capitalization is currently worth nearly $42 trillion.”

Let me explain the math. They claim today’s market capitalization is currently worth 42 trillion. I am not sure what the market capitalization was in 2008. I assure you it was a lot less. So yes, today we should see a larger loss because the market is bigger today. However, you have to look at the percentage loss and that number I am sure is not even close.  We are talking a loss less than 3.5% on the day.  That is hardly Black Friday.  Give me a 10% to 20% daily loss and I will show you Black Friday.

Another example would be comparing losses today to the great crash of 1929.  Losses in pure dollar terms would be much greater than in 1929 because the market is much bigger than the one in 1929.

Now Pop Culture Finance is telling you that you are crazy to sell your investments and get out of the market because of BREXIT.  They once again are speaking in absolute truths (statements believed to always be true). They will tell you that you never sell out of the market because of a crisis. They reference 2008 and the financial crisis and it was a mistake to sell out of the market.

Is it that easy?  No, not quite. Granted, we haven’t seen enough yet to determine whether or not investors should reduce risk in your investments.

On the other hand, to just stay invested when risk has greatly increased the chances of a bear market makes no sense.

It may very well be that this market becomes too out of balance where the risk doesn’t equal the reward.  We are not there yet.  However, we are getting close.  Does it make sense to stay in a market if it is about to lose 50%?  Stay in touch with this blog – I will keep you posted.

Bob Brooks is the host of the Prudent Money Radio Show and the president of Prudent Money Financial Services.  Through his firm, he invests and manages investments for his clientele.  To contact Bob, you can email Judy Parrish to set a time –Judy@prudentmoney.com

Brexit Is Only the Catalyst – The Market Is in Bad Shape

Brexit Is Only the Catalyst – The Market Is in Bad Shape

I have been writing about the underlying trends and technical indicators that have been signaling that this market is in bad shape. It has just been propped up. There are a long list of catalysts that can take the stock market down. Great Britain leaving the EU is just one of them. In addition, it is too early to say what the long-term effect could be. The bottom line is that the global economy and markets are walking on a tightrope with not much room for error. A move like this one destabilizes the overall balance.

I wanted to share a few resources with you.

This was a piece that I wrote last August about a pattern the Dow Jones Industrial Average was in. http://www.prudentmoney.com/2-potentially-dangerous-patterns-the-dow-jones-is-following/

Then this is part of a client letter that I wrote about other indicators that are suggesting we are about to go through a difficult time in the stock market.

If you have any questions, feel free to reach out through email – bob@prudentmoney.com

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