Lost $30,000 in stock market. Should I reinvest?
First foray into stock market led to a 90 percent loss. What's a better way to invest in the stock market? Question No. 1 in this reader mailbag.
What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Recovering from a big loss
2. A disastrous turn of events
3. Feeling scared all the time
4. Dodgy seminar?
5. Basic budgeting for young adult
6. Credit card strategies
7. SAHM transitioning to career
8. Investing with risk
9. Organizing tax-deductible expenses
The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds – we just want simple ways to manage our finances and save a little money.
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The month of June has seen me working like crazy to get additional posts in reserve for some periods of travel later on in the summer. My goal is to be able to enjoy these trips without worrying about writing content while also not missing a post here at The Simple Dollar.
That means, of course, that I’m working overtime right now. Today, for example, I’m assembling and working on almost a dozen reader mailbags (it’ll take me several days to do all of these).
Q1: Recovering from a big loss
In 2007/2008 I invested in some individual stocks, Citi, Fannie, Freddie etc. amongst others. Since then the portfolio is at an 90% (30K) loss. I don’t NEED this money so I’m OK with riding it out for 30-40 years, in hopes of a recovery. Even if I lose it all its fine, as fine as losing 30K can get, it still hurts but what can I do, can’t beat myself up about it.
This was my first venture in to investing for retirement. Now I’m in a place where I’d like to start investing for retirement again, with a much more conservative mindset, ETF’s, mutual funds, etc. But I am terrified of losing any more of my hard earned money. So it sits in savings accounts earning 1%. My plan actually is to wait it out until interest rates go up significantly 8% or higher and just load up on 10-20 year CD’s, to play it safe. I fear this master plan will never come to fruition and since my money won’t work for me I will have to work that much harder to retire. What do you think?
There have been very few times in history where savings accounts have paid 8% or more. In the mid 2000s,some accounts inched up to 5% with a few teaser rates at around 6%.
However, for such rates to exist, the economy has to be churning along quite strongly, causing the Federal Reserve to raise interest rates to a point where banks can make money with such interest rates. That won’t happen soon.
The problem with your initial investment is that you bought into individual stocks. Individual stocks are a very risky investment because you’re investing in just that one company and the people running it. Do not judge all investments by your experience here.
A much better approach is to invest very broadly in stocks using an index fund. A fund like the Vanguard Total Stock Market Index essentially allows you to own a part of a share in almost every publicly traded company in the United States. This protects you from individual company failure and even individual sector failure (which seems to be what you found). Instead, it’s more like riding the stock market as a whole. You’ll have a 15% gain one year, a 10% gain another year, a 30% loss another year, but over the long run (more than, say, 15 years), it’ll trend upwards with a pretty good average annual return. You can buy index funds from many investment houses; I use Vanguard.
Q2: A disastrous turn of events
In October 2010, I had a trach installed and have weakened to where I am on a vent 24/7. I was supposed to only need the vent at night and able to continue my job full-time. Since then I have not been able to return to work on-site. I am able to connect remotely but being in IT it’s hands on so there is not much I can do from home. I am now part-time with no set hours per week.
I just received a letter that I will be terminated on June 30th. So here’s where I need help.
I haven’t driven since my surgery and the van hasn’t been started since. My thinking is (since I’m the only one who can drive it with a big hassle to seek repairs) that it’s better to let it sit and not know if there’s issues then know and not be able to do anything about it. My expenses now are roughly the same minus the gas and other vehicle related expenses. I am still paying car insurance in hoping that I will be able to drive again. My inspection is due in September.
Since October my income has been significantly less but I’ve had the money + working a few hours didn’t hurt my emergency fund. I will have no income as of July 1st. Before I started I was receiving Social Security Supplemental Income (SSI.) I plan on seeking that again. The amount I received was comparable to what I am earning now (until the end of the month.) I don’t think I will be denied as my health has gotten worse and I’m not able to leave my house. The farthest I’ve gone since October was the end of my ramp otherwise it was on a gurney to the hospital.
Should I stop paying my car insurance? I don’t know if I’ll be able to drive when it’s due in August lasting until February. I can’t really sell my van because it’s customized for me. It’s under a carport but it’s only going to get worse in condition.
I really feel stuck. I had my dream job but lost it. I’ve come to accept it when they hired another IT person since I didn’t return soon enough (or now not at all.) I plan on writing thank you emails to a few people as I don’t hold any ill feelings. They gave my months to get back an unfortunately I can’t. The work I do from home is more of a handout and would not be missed as it can be done there.
Right now my day consists of being on the internet all day either working or just looking at websites. I wanted to get off the vent but now I feel too weak to breathe on my own. I have nurses here almost 24/7, my parents are here when they’re not. I feel like I’m being babysat (I’m 32 years old) but need the help because I could get a clot and without someone to remove it will not be able to breathe after 5 minutes (therefore be dead.)
I’m really banking on the SSI to pay my expenses. If I don’t get it, I don’t know what I’ll do.
It sounds to me like you hope to be able to drive your van in the future, but you haven’t been medically able to do so for several months. How long is it before you expect to realistically be able to drive your van?
I don’t know the answer to that. That’s something for you and your doctors to determine. However, if that time frame is more than a month or two down the road, you’re wasting money keeping insurance on that vehicle. You can always get insurance on the vehicle when you are able to drive again.
The key thing in your situation is to not give up or give in to depression. Keep your chin up. Find online communities that engage you and interest you. Get outdoors as much as you can and enjoy some fresh air. Good luck.
His death, aside from being a sudden and a very, very heavy blow emotionally, led to certain complications:
–mom being unstable emotionally for quite some time. She used to be such a strong person and now she rarely has the strength or desire to do anything.
–me going back home to her, leaving the friends I had from university and other people I knew
–huge money crisis since I spent two months looking for work, while having a business loan to pay
–break-up with my boyfriend of three and a half years (we lived together the whole time)
–leaving a start-up business which just started to earn tiny bits of money
–a lot of stress trying to figure out how to handle it and what to do next – go back to the big city or stay with mom, for example
By the way I LOVE my hometown and my mom, and I don’t view coming back as some sort of sacrifice (people have suggested so before but it’s really not true).
So my questions are:
1) I now realize I have this subtle feeling of being scared which doesn’t go away. I worry about mom, my future, her future. I also feel very alone because I am a single child, all my grandparents are dead. My aunt lives in the same town but we’re on bad terms. My other family is very far away. I feel like I have no one to rely on – because even though mom really does a lot, I can see she is not the same as before and I just don’t get the same sense of security as before. How do I deal with it?
2) As a result, I spent all my efforts to paying back my debt and saving. I now have growing savings which gives me some comfort and security. However, people my age tell me that I’m being too extreme with saving and trying to insure against everything. They say I should “live a little”. Do you think they are right? To be honest, so far having money in the bank really did help ease the worries to some extent, but like I said the fear of SOMETHING is still here. It is a fear that something would happen and I wouldn’t have the resources to fix it. Am I oversaving? Should I loosen up a bit and spend more on travel/entertainment? (Right now I get free-fun with books and walks etc. which I really enjoy.)
It sounds to me that you’re afraid of losing your mother and being alone in the world.
Let me put it this way: if you’re close enough to your parents to just drop your life and move back to your hometown to help out at this point, your parents were very central in your life. You’ve also broken up with a boyfriend that you dated for three and a half years recently.
Two of the three most central people in your life have vanished recently. That’s a major thing to deal with.
My honest suggestion for you is therapy. Simply go to a therapist and talk through these problems. I don’t think you’re in a situation where pharmaceuticals are a good answer, but talking through all of this will do you a world of good.
Q4: Dodgy seminar?
My dad has just finished a seminar about Be Your Own Banker, wherein you use dividend-paying whole life insurance policies as a vehicle to give yourself “loans” to make lifestyle purchases, like a house, car, etc. I’ve gone to the web site, but it just has cursory information, and not much substance (I guess you have to pay to go to the seminars or buy the book to get the entire philosophy). What do you know about this, and in your opinion, is he being taken for a ride? I know you’re not a proponent of whole life, and neither am I – my husband and I both have term policies taken out on each other. However, if this is one way that you could build your wealth, after eliminating your debt, and also a way to finance “loans” to yourself, rather than being dependent on banks or other financial institutions, with all the tax and interest implications, it seems as if it might actually be a good way to build wealth, avoid taxes, and live your life independently. They’re not billing themselves out as a “get-rich-quick” scheme, so I have to give them credit for that, at least, but if they’re fleecing people long-term, then it’s still a scam and people should be aware of it.
It’s not a get rich quick scheme, but it’s not a brilliant scheme either. It’s not always as easy as they describe to borrow money from a whole life policy.
For one, there are often waiting periods to borrow money. It’s not always available just when you need it. For another, you have to pay interest on that loan at a rate specified in the contract. All that does is tie up your monthly cash flow again, no different than any other debt.
While the concept is good – have enough money in the bank so that you can borrow from it! – it doesn’t make sense to work a whole life insurance policy into the mix. Just have your own saving/investing plan and take money from that when you need it. No monthly payment, no waiting period, no interest. If you want life insurance, get yourself a term policy, as it’s a lot cheaper and provides the same peace of mind.
Q5: Basic budgeting for young adult
I just graduated from University in May and have a smallish amount of debt, $4,500 in federal student loans at about 6% interest and $450 on my credit card (interest is about $4/month and I pay 2x the minimum). I have 5 months left on my loan grace period before they start payments. In addition, because I chose to study abroad in London my last semester, I have saving of about $600. I was lucky enough to get a fulltime temp job (3-5 months) that pays about $500/wk, 75% goes straight to savings, the rest checking. I live with family so I have limited expenses aside from gas for my hour commute (Biking or busing would take 4hours total) and about $20 in coffee per week. I would like to pay off my debt, save for an apartment, and also build an emergency fund, but I don’t know how much of my income to allocate to each area. Any advice would be great because I am financially lost in this “transitional” period of my life.
If I were you, I’d prioritize those goals you have according to the specifics of your current life situation.
Since I don’t know all the details, I can only give you my impressions based on the information I have. I would probably save a small emergency fund first, perhaps $500. After that, I would knock out the debts. Once that’s done, I would start saving for an apartment.
This, of course, assumes that your living situation is tolerable both for you and for the person you live with.