Costly mistake, worth of financial planners, and where to invest when everything

[El Cuajinais]

I just realized I made a mistake on top of another mistake that cost me a few G’s in present value. To say nothing of the long term impact when calculated to retirement age. Both mistakes stemmed from the same root, which was not knowing that I could not rollover my 401K from a company based in Puerto Rico to my new 401K plan in a company in SC. I am deflated to say least. So much sacrifices that one makes to be thrifty, and just thinking how more sacrifice I will need to do to save back the amount I just blew is very depressing.

I’ve never used financial planners because I don’t trust them. But damn this cost me. Are financial planners worth it for you guys? I’m 40.5 years and already lost a large chunk of money in real estate. I had to move from PR and the RE market there is the worst on planet earth. That is a fact from a RE study, not me using hyperbole. I am sitting on a pile of cash (mostly from selling the house) in a money market account because I am terrified on where to invest it. I am also terrified of my current portfolio which is:

82% Cash (but the emergency fund is in there, so I probably should not count that)
12% Stock (Employer 401K)
6% Gold

Actually this is what it looks like if I discount emergency fund from cash.
79% Cash
14% Stock (Employer 401K)
7% Gold
 
So inflation will really screw me over.

Basically I bought my house and gold at their respective peaks ( Lost 35% on house because I and had to sell, and have lost about 26% in gold but no need to sell). So you can see where my reluctance comes from. And the thing is I am convinced that current US real estate market is very expensive, and so are stocks. I would love invest that 79% cash in stocks and real estate but I’ve read enough and lived enough to know both can crash at any moment. And there are no guarantees they will come back to current levels before I have to retire. Sure people can debate endlessly whether or not they will crash; but I think in 2018 it is difficult for someone to say that stocks and RE are not very expensive. There is even an article on this very site stipulating we are close to a recession. I want to get in on a deal, or at least in fair value, not when everyone and their grandma is buying stocks and RE like there is no tomorrow. What are current investments that are not very expensive? The only thing that occurs to me is real estate in small towns that nobody cares for at the moment, or maybe a large asset like machinery that can be rented.

[jlcnuke]

Stocks "may" be expensive today, but today's stocks are almost certainly a massive bargain compared to their price 20 years from now.

In February of 2002 the S&P 500 P/E was over 40, much more "expensive" than they are today. That same month the S&P 500 was at 1,100.67. Today it's at 2,673. If you'd have $100k in cash in February 2002, how would you feel today if you decided not to invest that money because stocks were "expensive"?

[NoStacheOhio]

I'm not sure I understand the first part. Your PR 401k can't just disappear. Have you tried rolling it to an IRA? Do you have to keep it with a PR bank? It's not like you can't ever transfer money between PR and the mainland.

[El Cuajinais]

The money did not disappear, but I was forced to cash it. So I lost part of it.

[NoStacheOhio]

The money did not disappear, but I was forced to cash it. So I lost part of it.

That makes more sense. You probably could've rolled it to an IRA. If not, just put it into a taxable account and invest in line with your preferences.

[Easye418]

Yeah... not being able to trust the market probably hurt you but you still have time to make good gains.  Like the poster said, don't think about it in the short term, its all about long term.

My dad had tons of GOLD, he bought it all in the late 90's when the price was really cheap,  thankfully we dumped it all when it popped.  Market has been pretty stagnant since the boom-bust.

[sui generis]

Don't beat yourself up too much over the past.  We've all made mistakes and I could count a lot more than a few thousand dollars I am out if I had made a few different choices.  As far as making better decisions going forward, I don't personally think a financial planner is usually necessary, except for very complicated situations.  In any case, I think the general consensus is that if you choose that route, find a fee-only planner, not one who makes commissions off what they recommend to you.  And/or one that is a "fiduciary" so that they can only do what's in your best interest, not what maximizes their fees/commissions.

I also suggest not getting too stressed out about "getting in on a deal" as much as doing careful research about what your best options are.  Yes, doing a lot of this research exposes you to people that have gotten in on deals, whether real estate, entrepreneurship, blogging, dividend investing, you name it.  And probably most of us are caught between feeling like we were the unlucky/dumb ones that missed out on great opportunities, or a frenzied race to see if we too can get in on any of them.  But getting anxious probably only makes us more susceptible to making poor decisions.  Because I've never spent enough time to identify nor been lucky enough to stumble upon a great deal I could get it on, I've mostly gone the traditional route of index investing and trying to increase my frugality.  And being happy with less than I thought I needed.  Something like that is at least a good plan to start with, to find a place for that cash, while you invest your time, over a slightly longer horizon perhaps, in researching and identifying exciting deals that make sense for you.

[harvestbook]

Every day not in the market, you are missing out on dividends. Even if the price drops, those dividends keep grinding away and churning up money. If the market drops, those reinvested dividends are buying even more (cheaper) stocks. If the market doesn't drop, well, you have more money. Compounding is simple and it works over time.

Basically if you sit in cash you can either expect to work most of the rest of your life or else seriously increase your savings rate. A happy median might be to just invest a portion of the cash--say, half--and go from there.

A fee-only planner might be worth it for a one-shot review to get some peace of mind. Just be careful that many who bill themselves as "fee only" also actually do commission work and will try to rope you in. I ran into that so often I quit looking.

[rockeTree]

I can imagine that after moving from PR to SC (in the last year?) and dealing with real estate transactions where you come out behind  the dumb finance rules the feds impose on PR are about the last straw. I'm sorry. As hard as you work to save money, being penalized for moving within the country stings. But it's past, and they're not going to change that rule just because it's unfair (and when you saved that money did you expect to move? My bet is you made the best decision you could with the information you had), so you start from today and now and where you are. You're a saver and you're going to be ok. A financial planner would not have avoided these troubles.

But you should get into the market. Yes, the world economy could utterly collapse but if it does you will have worries other than the size of your retirement accounts - you can hedge that if you want by stockpiling canned tuna and shotgun shells but it's a low enough probability event that I do not. If it doesn't collapse, as is more likely, it's the markets or the risks of entrepreneurship for you. If you think US markets are overvalued, weight some of your stock allocations more globally. If you're antsy about real estate rent. If you need some time to breathe before you have to watch your accounts fluctuate again at least get it out of cash and go more heavily into some bond funds or CD ladders.

[ysette9]

You really need to read all of this to educate yourself about how the stock market works and what the real risks and benefits are. Then come back and ask about what you should be doing with your money. We can tell you what the right thing is, but unless you know it and believe it, you won’t have the conviction to stay in when it dips, and you will probably just panic and lose yourself some more money. What to do is simple; the mental game, not so much.,

http://jlcollinsnh.com/stock-series/

[jdfergason]

El Cuajinais, tax laws concerning Puerto Rico are complicated at best.  You're right that you cannot rollover a qualified benefit plan in Puerto Rico to a US qualified plan or to a US IRA.  This is an issue that most financial planners would not be qualified to advise you on.  You really need an accountant that specializes in both the US and Puerto Rican tax code.  It's unfortunate that Puerto Rio chose to call their tax advantaged retirement account an IRA as it promotes confusion.  Technically it's not the same thing as a US IRA.

It is notoriously difficult to predict the future direction of stock prices. What it means for a stock to be expensive is difficult to nail down.  If you look at the CAPE ratio stocks are very expensive by historical standards.  If you listen to Warren Buffet (one of the most successful investors in the world) then stocks are fairly valued right now because interest rates are low.  Expensive / fair value is always relative to what future return expectations are.  No matter what anyone tells you, I guarantee you that no one knows whether stocks are cheap OR expensive.

The pundits said stocks were expensive in 2013, 2014, 2015, 2016, *AND* 2017--they were wrong on each count.  What I can tell you is that anyone who said stocks were expensive in 2013 and chose to stay on the sidelines regrets it today.

Some rules of thumb about investing:

• There is no 15-year period where investors lost money -- the biggest losers are those who were too scared to participate in the stock market
• Focus on a good asset allocation and buying good companies at a reasonable price.  Think of stocks as businesses -- not tickers.
• Investing fees matter... don't pay too much for financial advise or for mutual funds.  Try to keep total investment fees below 1%
• Don't buy into the zealots advise.  There isn't one *right* answer to investing.  There are excellent index funds available and excellent active funds.  Pick one you feel comfortable with and don't sweat it.
• If you don't know to much about investing and would like the help of professionals buy a target retirement mutual fund from Vanguard, Fidelity, or T. Rowe Price.  These funds are low-cost, run by professionals, and automatically adjust their risk by number of years you have till retirement.

[freya]

We all make costly mistakes.  That's how we learn.  The trick is not to make them more than once!  Don't be discouraged!

My mistake was way worse than yours, and it happened because I listened to a financial planner who was overly enthusiastic about tech stocks.   It cost me $80,000 in retirement funds in my 30s.  A very tough loss to recover from, but I have and will never make a similar mistake again.

If you do hire a financial planner, make sure it's a fee-only advisor.  And whether you do or not, read up on passive investing principles - this is a good place to start:  https://www.bogleheads.org/wiki/Main_Page.  In order to succeed at investing, you have to proceed in a disciplined manner, not worry about drawdowns, and keep your emotions out of it.  It will work, I promise!

Take your time and do lots of reading, then jump into investing with your cash when you're ready.  It may help to step in gradually, rather than going all-in at one time.  Divide your cash pool into several parts and invest each once a month.  Also, read up on tax advantaged options, like making Roth IRA and HSA contributions.  These are important because they allow your investments to grow tax-free.

Regarding the gold:  I am one of the few who believe that gold is an important counterbalance for stocks and bonds and it's worth keeping a slice in your portfolio.  But, ONLY do it as part of a balanced portfolio, where you buy and sell as needed to maintain a fixed percentage.   The site portfoliocharts.com will let you examine some portfolios that contain gold.  Either way, though, you should sell your gold in order to "tax loss harvest" - i.e. claim the loss on your taxes.  You can buy it back right away so it's a zero cost maneuver, because wash sale rules do not apply to gold.  There are online companies that will do this for you in a single transaction (look at APMEX), or you can go to a reputable local gold dealer and do it all at the counter.