Tuesday, November 25, 2008

Responsibility in the age of uncertainty

"The economy's likely to get worse before it gets better. Full recovery will not happen immediately." - President-elect Barack Obama

Today I'm attending a meeting about starting my own 401k--something I've wanted to do for awhile, but could never really afford (and still just barely can)--and I have to admit, current news is not filling me with a whole lot of confidence about it.

If I start contributing to a 401k now, do I just immediately start to lose money? Or will this be like getting in on the ground floor, just in time for the economy to begin some sort of recovery?

Word out of Washington and Wall Street is not encouraging.

Unless you're the CEO of one of the big, federally bailed-out corporations like AIG or Citibank, times are tough for all of us. Regular folks are not going to receive generous, no-strings-attached, don't-even-have-to-really-have-a-recovery-plan bailouts from the government. Instead, we're going to watch our jobs and wages cut, our retirement savings shrink, and, if this downward slide really gets chugging, a cut in our standard of living.

So why on Earth should I start paying into a 401k now? Frankly, I don't feel like I have any other particularly good options, and simply not attempting to save for retirement feels like a supremely bad idea.

Still, this has to be one of the worst times in a very, very long while to be jumping into adulthood and an attempt at financial prudence.

I worry, too, that the economic downturn will be used by moneyed interests as an excuse to forgo real efforts at developing viable alternative energies, cracking down on pollution, and generally trying to clean up our act before things really go to shit. The argument will be something along these lines: "We simply cannot afford to put money into those things that are unproven and/or prohibitively expensive when people are in such dire need of services right now!"

But people are in dire need of a healthy planet on which to continue living right now, too. And for all the billions (if not trillions) of dollars that are being pumped into the creaking, bloated, poorly-run corporations, we could instead be spending that on things like creating a whole slew of new jobs in alternative energy, green technologies, infrastructure improvement, education, and health care. Those are the things that are most crucial to creating and maintaining a viable economy and populace in the future. Not just investment banks. Not just car companies that actively block legislation that would have made them improve their games and perhaps even avoid their current dire straits.

I can only hope that we get enough of the right people into enough of the right positions to steer our country in a better direction. I am optimistic about an Obama administration, but even if they do manage to live up to their lofty rhetoric, they alone cannot make the difference that's needed. It takes a village, and all that.

In the meantime, I'm going to attempt to get my financial ducks in a row, and muster up the patience to see all of this through, despite any market or personal hiccups that are likely to come along the way.


John A said...

A quick note on the 401(k) front: If you're reasonably sure that the economy will recover some time between now and your targeted retirement date (which is probably about 2045 or so?), then investing in your retirement is a good plan. Just go with a diversified mutual fund set and don't look at it again for a while.

Don't worry about doing anything "just in time" for a recovery. This is money you won't be using for a very long time.

If you're feeling really risk averse, just throw the money in a CD until the economy improves a bit. You won't get a tax benefit, but you've got a guaranteed return, even if your bank fails. Like the cliche goes, pay yourself first.

On the other point, you're right. It costs money to reform energy policy, pollution policy, health care, etc. And it's going to suck for people to hear that they're going to lose their jobs because the company had to spend money on something other than their salary, like a new low-emitting air conditioning system, or a new health plan. It's tough to take the long view when it's your ass on the line. It's not quite a zero sum game (as Paulson keeps demonstrating), but it's a reality we have to deal with.

Emily said...

You're right, of course. Both issues have the same general solution: take the long view.

I will be signing up for a 401k and contributing as much as I can, because I know it's important. I should certainly hope the economy is a bit better by the time I'm up for retirement, anyway. :)

Cam said...

Either the economy is going to recover and our 401k investments will be wise or the economy is going to go to hell we'll go all Mad Max (at least I hope its Mad Max and not the Postman)and paper money will be worthless anyway, so buy some canned goods, mabye a gun or two and put some in your 401k that way you're covered either way.

Emily said...

We need to come up with a viable post-apocalypse plan to make sure things go Mad Max instead of Postman.

Kostner better watch his back, yo.

mal said...

Some econ site you mights like:

- http://www.rgemonitor.com/blog/roubini/

- http://finance.yahoo.com/tech-ticker

Also, look into if you can get a Roth self-directed IRA and be king of where your money goes.

michael d said...

John and Cam are both right. Now, like every other time ever, you shouldn't invest money you can't afford to be without for a while. The rule of thumb I subscribe to is that if you need the money in the next five years, keep it in cash, a CD, or a money market account.

Even as crazy as things seem, the odds are pretty good the economy is going to not only recover but also surge ahead some time in the next 35 or 40 years. If you haven't invested, you'll be a sad panda.

Mad max planning is basically another sort of investment. What are the odds of an apocalyptic collapse of society, what are the best steps to take, and how much difference will they make? Heading into January first of 2000, I had made sure my car was full of gas, that I had at least three days worth of food in the house, and that I had a couple of good books to read. I didn't think anything was actually going to happen, and if it did I thought that would be enough to see me through any actual trouble.

Personally, I think we won't collapse. There are too many people too invested in keeping it from happening. But, for me at least, it's fun to consider the possibility and interesting to make plans that will probably never be necessary.

The Lost Albatross