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Recommendations on how to shield a 401k from severe downturns?:

Today is the first day of my new Cheat Sheet feature featuring a question from a listener / reader.  Everyday I’ll pick one question or topic asked for by you and will include it on the Cheat Sheet (on-air & on-line). 

Today’s question is…  Do you have recommendations on how to shield a 401k from severe (market) downturns?

1. Yes there are ways to protect yourself from a down turn
2. I do have recommendations

First I’m including a typical list of investment options from a 401k plan (in fact the options below are included from my 401k plan  - I’ve eliminated many of the options for the ease of navigation in this story). 

In the chart below you’ll see the following with your investment choices:

                                     1 yr       3 yr        5yr        10yr      Life

You see a mix of options.  Small, mid & large cap stocks.   Stocks aimed at companies that produce income and international companies .  You’ll also see a Bond fund and money market option.

As you’re looking at the options observe the vast difference in historic rates of return in these investments.  If you are one of many who “set it and forget it” are you really serving your long term interest?  I’m not encouraging trading around with your 401k but clearly there are investment options that perform far better than others.  For the purpose of the question though I’m going to focus on the bond and money market options.

Virtually all 401k plans will have bond and money market options.  If you feel there is a severe downturn in the stock market coming and you want to shield your retirement account from the downturn – these are the two best methods to use.  First the bond fund:

Bonds do carry risk – they’re debt after all.  Historically during times of negative stock market turbulence they perform better than just about any other investable option in a 401k plan.  So moving into a bond option can make sense.

The ultimate short term transition though is into a money market option:

You can see that the current yield in my 401k’s money market account is well non-existent.  The odds are you won’t fare any better in your 401k money market.  If you want a safe haven to ride out a short term negative event though.  This is the best option for capitol preservation.  The one time (and still only time) in my lifetime that believed we should be out of stocks completely was in the summer of 2008.  During that time I moved everything in my 401k into the money market account until I recommended stocks as a safe investment in March of 2009. 

Preservation in your 401k is even more important if you’re in the final prep years for your retirement and wouldn’t have time to recover if you suffered severe losses in your 401k.

Thanks for the question!  If you’d like to submit a question or topic for me to cover email me:  brianmudd@clearchannel.com

Private equity pouring billions into housing:

Bottom Line:  Last week I was inquiring regarding the influence of private equity in the local real-estate market.  I was told it was huge.  Some private equity firms are literally bidding on all foreclosures that fit a certain geographic profile.  Many of them are active in our area & that has a lot to do with the 70% of cash buyers in Palm Beach County for example.  We now know how big the influence has been nationally.

More than $8 billion dollars has poured into residential real-estate in 2012 from public equity firms.  Looking toward 2013 – that number appears headed towards $13 billion. 

Here are the likely implications:

1. Continued recovery in housing nationally (demand for inventory)
2. Increase in property values
3. Increased new home construction

Let me hone in on the property values.  During the worst of the economic decline distressed property values (including foreclosures) began factoring in as comps for all property values.  With competition for foreclosed properties with private equity being a strong factor in the bidding process – we have higher foreclosure sales prices on foreclosed properties but that’s just the first phase. 

We also have most of these properties being fixed up and resold within six months of the foreclosure.  That further increases the comp value of that property (and any properties that would use that property as a comp). 

I challenge you to look through a local community that was full of abandoned and/or distressed homes a year ago.  You’ll likely find that many homes have been fixed up and have end users living in them. 

With private equity as a back drop I’m expecting real-estate to continue to be the best place for investment in 2013.

http://www.cnbc.com/id/100293192

Future of medicine – computers more accurate than doctors…:

Bottom Line:  More than 40,000 die every year from miss-diagnosis.  We may be close to solving several issues along those lines.

The University of Miami has been part of a project for seven years that has studied the ability of computers to diagnosis ailments.  What they are finding is pretty dramatic. 

91% of the time computers are properly diagnosing patients based on history, ailments and descriptions provided by patients.  That’s more accurate than the average doctor.  Moreover, the computers are that accurate without as much testing.  The implications are huge.

• Quicker diagnosis
• Less testing
• Healthier people
• Fewer appointments

All of those equal less expense as well.  80% of all work conducted by doctors can be replaced with more accurate computers.  Perhaps it’s time we moved in that direction.

http://tech.fortune.cnn.com/2012/12/04/technology-doctors-khosla/

Digital education has already taken over  the traditional classroom:

Bottom Line:  I’ve been advocating with taking the traditional classroom into the digital age.  Using tablets and eBooks in place of traditional textbooks.  In addition to no longer having to lug books around, kids are connecting with education in a way they prefer to learn.  In reality the classroom has already gone digital, even if they aren’t using eBooks.

Classrooms that use textbooks are only using them (students and teachers), as the primary resource for researching information, 18% of the time.  The top way – of course online. 

94% of research begins on Google and 75% use Wikipedia as a source.  The latter is where I cry foul.  Wikipedia is not a legit source for learning or citing.  While many listing are accurate, many aren’t.  Anyone can edit the entries on that site and many do. 

Some people have intentionally entered false information for the purpose of having the false info perpetuated for an agenda or so they’ll be proven to be wrong (even journalists have been caught doing this). 

This is another reason I think it’s important to transition.  If we were using eBooks – the students could search within the eBook and have credible info at their finger tips.

http://bgr.com/2012/12/06/google-wikipedia-top-student-research/

Gift list apps to keep you organized & on budget:

Bottom Line:  We use apps to keep track of our gift list.  I highly recommend you do the same if you’re trying to track who you’ve purchased for and how much you’ve spent.  Click the link below to see top options.

http://arstechnica.com/apple/2012/12/making-a-list-and-checking-it-twice-five-ios-gift-planning-apps/