Over the last week I’ve been moving my finances into more secure positions. Positions where I won’t make as much return on investment until I rebalance, but I also won’t get soaked like I did when the .com bubble burst…
I’ve been through a few bad financial periods in my life and my spidey-sense is telling me another one is coming. After all, we’re currently faced with this:
The U.S. right now is literally propped up with imaginary money… And that’s just the icing on bad employment numbers, inflation that’s going to the mooooon, and wars breaking out in the middle east…
Most of my retirement is wrapped up in my 401K. But the problem with 401K plans is that if you close them before 65 or so, you nullify the tax benefits and have to pay the taxes on the gains. So if I were to pull everything out to prevent it from evaporating if the markets tank, half of it would evaporate in taxes almost immediately.
There is a tactic though; you can take out a ‘loan’ of up to 50% of your 401K holdings.
Two things happen when you do this: Your vested amount in the market is reduced, which reduces your returns on what is still invested – so if your timing is off you can really dent your retirement fund in the long term.
You also have to pay back this “loan”, with interest – but you are paying that back to yourself versus some bank. The percentage rate on this loan is pretty small though – smaller than what you’d get from leaving the money in place in a good economy.
But if the market tanks, you can wind up doing better if 50% of your holdings are in a more secure position. And you’re paying yourself back, with that small interest, so you can leverage your income as a trickle charge on your 401K until things hopefully get better.
And this is what I’m doing.
The complication is just how insanely slow the banks are even in this high-tech digital future we all live in. It’s taken most of a week to get everything aligned to write myself that “loan”, and during that time I’ve lost a few thousand dollars from the general market instability right now.
If the banks were three days faster, I would have saved half of that money… But if the inverse were to happen where I owed the bank money, I’d have a span of hours to get it done or else.
Oh well. I’m entirely too small of a fish for my banks to even give me the time of day, so I just do the best I can with my financial Ouija board and try to give myself enough lead that bank delays only hurt a little…