Investing for the Investment-Phobic

Xstatic3333 · January 2014

My H is contributing 9% pretax to a pension fund, and I have finally convinced him of the need to do a little bit more than that. This month, we are going to open him either a Roth IRA or an IRA, depending on what our tax accountant thinks is best. We have similar after-tax incomes right now, and H read online that sometimes that can create a "marriage penalty" for couples filing jointly. The whole thing confuses me, which is why we will just ask the accountant

Anyway, H has agreed to contribute 2% automatically from each paycheck. Since I got into MM research I have found learning about investing fun and interesting. I'm fine with my Roth IRA riding the ups and downs of the market, especially with so much of H's retirement in cash (it's pretty likely he'll move on from his current position before it's vested). However, H rode out the recession working in a customer service call center for a mutual fund company. Basically, he spent the better part of 2008 and 2009 explaining to frustrated 60-somethings why their retirement funds were gone, and it understandably scarred him. He is really nervous to invest in any remotely risky funds, and the "but my IRA made all the money back and then some" reasoning doesn't help.

What would MM recommend for a retirement investor like my H? I don't want him to be uncomfortable about where his money is. Bonds maybe? Or a target date fund? Is anyone else on the board coming from a similar viewpoint to him?

vlagrl29 · January 2014

I totally understand where he is coming from. After about 3 years of marriage my DH finally got me to the point of putting a little bit of cash in the market, a little at a time, not the entire chunk. The week before the stock market tanked back in 2008 my mom came to my house and moved all my investments into a fidelity bond to keep it from loosing so much and I"m glad she did because I had quite a bit of money in my IRA. I basically kept it in that bond until 2 years ago and started selling some of it as cash. I still need to reinvest more, but seeing how much I have made since I reinvested ($18,000) has really helped me want to keep doing it.

I went to our fidelity office and have met with one of their investors twice now. It is free and has helped me feel more comfy about investing. DH convinced me to invest in some individual stocks, and I have the rest in mutual funds and a bond. It's great to be balanced. If he is only in bonds he won't get as much money like he would if he was in stocks. The people at fidelity basically had me answer a questionnaire to help me see how risky I wanted to be. I think I have around 70% in mutual funds (stocks).

jessica490 · January 2014

I'm not good with the investments thing either so right now I have mine in a target date fund. Makes it easier for me right now.

hoffse · January 2014

Target dates are good, and so are indexed funds. They're less risky overall.

It can be difficult not to worry about this sort of thing... my H is more of a worrier than me, and his solution is to just not look at every day. He checks his personal retirement account about once a month. It helps him see that overtime he tends to be positive. If he's negative for too long (6-12 mo) then we sell. But he does try to give a fund an honest shot before selling in a panic. Sometimes it takes a couple months to be in the black. I bought a fund at the beginning of Oct that consistently lost money until around Christmas. Since Christmas I'm up 17% from where I started in October. It's a biotech fund, and apparently the insurance changes have caused it to boom. That's what I was hoping would happen, but I had to wait a few months for it to really take off.

Bonds are also pretty good for the investment-adverse, but growth is really too slow for 20-somethings to build seed wealth quickly. That said, any growth is better than cash, so a nice compromise might be to make your funds riskier and his more conservative. That's what H and I have done, and it's worked well.

Xstatic3333 · January 2014

Thanks all! I like the idea of actually going to Fidelity to have him talk to someone-I think that may go over better than "I read this online! Do it!" I also like your view, Hoffse, that if he is in more conservative funds it will diversify us as a couple. Unfortunately H isn't a 20-something anymore and my days are numbered, so we need to get moving on this! I bet he'll go the Target Date route over index funds, but we shall see!

mbecker03 · January 2014

Just be careful. I'm all about index funds and I think they're the best way to go in general, but a stock market index fund is still risky and will still have big swings. Don't get me wrong, it's a great long-term investment, but it won't do anything to help someone who's ready to quit at the first sign of trouble. Target date funds are the same thing, since they often have a pretty significant percentage in the stock market. And not all target date funds are good. There are some great ones out there made up of low cost index funds, but some others have very high fees. Just make sure you know what you're buying.

It's hard to give a definitive answer here without knowing more, but I would just advise you to start conservatively, maybe with something like a total market bond fund. Vanguard has a good one: https://personal.vanguard.com/us/funds/snapshot?FundId=0084&FundIntExt=INT. Fidelity probably has something like that as well. It can still lose money, but it likely won't be huge swings like a stock fund. You could even go more conservative with something like a short or intermediate term US Treasury bond fund.

In general, I think the most important thing is to get back into the swing of investing and to only add risk slowly as comfort builds. What you want to avoid is overdoing the risky stuff too soon, have a bad market, and have him freaked out for good.

Good luck!

cbee817 · January 2014

My entire 401K is the Fidelity Freedom K 2040 Fund (FFKFX). It's had some big swings- obviously in 2008, everything tanked (return was -38.9%), but over the last 5 years, it's gotten decent returns with 2013 being the best at +22.7%. I'm probably going to move to the 2045 Fund (FFKGX) because I will be 64 in 2045, but I really like the Target Date funds since I don't need to think about rebalancing as I get older.

Xstatic3333 · January 2014

cbee817 said:
My entire 401K is the Fidelity Freedom K 2040 Fund (FFKFX). It's had some big swings- obviously in 2008, everything tanked (return was -38.9%), but over the last 5 years, it's gotten decent returns with 2013 being the best at +22.7%. I'm probably going to move to the 2045 Fund (FFKGX) because I will be 64 in 2045, but I really like the Target Date funds since I don't need to think about rebalancing as I get older.

I think that's the way we're going to go. I brought all of these great suggestions to my H, and his preference is to let me decide. I think I'll go with a target-date fund with a slightly sooner date than our actual retirement so that it will be a slightly more conservative portfolio. I like the idea of index funds and may switch to them myself in a few years, but since H distrusts the market as a whole I'm not sure their the best fit for his accounts.

It's interesting how we both have different lingering fears from the recession. H is nervous about investing, and I'm terrified of home buying after watching a coworker go through a short sale. Hopefully we can both channel this into smart choices as opposed to fearful ones.

Investing for the Investment-Phobic

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