Housing, Retirement and 401(k) Changes

Here's another of TAG blog's periodic side-trips into things economic, beginning with TAG's 401(k) Plan:

I've received expressions of confusion regarding the letter that was recently sent out to Plan participants. It involved a long explanation of combining numerous 401(k) accounts in TAG's Plan into one account. So here's the short, non-official version about what's happening.

* When we first engaged Mass Mutual as Plan Administrator, the company -- due to its internal tracking mechanisms -- broke out 401(k) contributions into separate accounts for each employer of our multi-employer plan. So if you worked for say, Disney, Warners, and Nickelodeon and made 401(k) contributions at each studio, you got multiple statements -- one statement for the House of Mouse, one for Warners, one for Nick, and so on. This caused angst, confusion and more than a teeny bit of irritation.

* So the multiple-statement thing will now be changing. As of the evening of October 10th, the annoying multiple statements will be combined into one all-encompassing statement. There will be a blackout period from October 6 to October 10 to get this merging of statements accomplished.

The above is a truncated version of upcoming facts. What follows below is opinion. Even better, the opinions of a person who is not a licensed financial advisor but deals with financial things day in and day out.

Re the stock market: I get complaints about the southerly direction of TAG 401(k) Plan's stock accounts. I tell people, "It's going to be choppy and probably downward over the next several months for equities. Company profit margins are shrinking. This puts pressure on the value and earnings, which results in lower stock prices. But if you have a long time horizon (ten to thirty years), this could be a good time to be slowly buying stocks, because you're buying at lower and lower prices. And getting better and better bargains."

Believe it or not, many don't buy this. They see their share accounts shrinking week by week, and freak. And bail out into fixed interest accounts. It's an emotional thing to do, also -- for many in their twenties, thirties and forties -- a short-sighted thing to do. It's hard under the best of circumstances to market time (knowing when to get in ... or out ... of stocks).

But hey. Everybody has to be able to sleep at night.

Re home prices: I got a call a few weeks ago from a member/401(k) participant who wanted to pull moolah out to fund the down-payment on a house. I said:

"Uh ... okay. But keep in mind that home prices haven't bottomed yet, and you might find yourself owning a place that's worth less* than you paid for it a year or two from now ..."

There's still a sizable inventory of housing out there, and lenders have suddenly gotten more picky about who they give loans to. (This is known as "closing the barn door after most of the herd has already escaped.") So residential real estate is declining. In my zip code, it's dropped 26%. In places like San Bernadino, Lancaster and Palmdale the toboggan slide has been way steeper and longer.

We've been through this before, back when aerospace contracted in the early nineties. That time, houses lost value for six-plus years. Out in Palmdale, you could drive past big housing developments from which the builders had walked away and gawk at half-built two-story McMansions bleaching in the desert sun.

This time, I think the drop will go on for almost as long. One of my best friends, a Wise Old Economist with a PhD in Economics from Cornell, believes that it will take four years to work off the nation's excess housing inventory. (This will vary from region to region. And predictions, even ones from PhDs, can be wrong.)

Long and short of it is, just now I think it's wise to:

Be conservatively invested, and have a bit more bonds than you'd normally have.

Not buy a house ... yet. The market hasn't bottomed.

Now, back to Cartoonland.

* Corrected from the stupidly incorrect "more."