Examining the New Bubble 186
abb_road writes "Whether or not we're in the midst of another boom-bust cycle in technology is a matter of fierce debate. BusinessWeek discusses what constituted that last bubble and looks at current trends to see if we're on the verge of a new one. From the article: 'The Great Bubble of the late '90s shaped a generation of Internet entrepreneurs and investors much as the Great Depression shaped a generation of economizers in the mid-20th century. 'The bubble generation is much more attuned to the fact that things can get really out of hand,' says Bill Burnham, a former partner at Mobius Venture Capital. 'There's a level of caution that has been ingrained.'"
Completely different! (Score:5, Funny)
Boy, people sure were stupid in the 90's, huh?
Re:Completely different! (Score:3, Insightful)
Well, it is a fundamentally different climate, as far as startups go.
The early stages are pretty similar. You'd have an idea and get some venture capital. Then you'd use that money to grow your business. You'd generate buzz, and then people would start to get excited about your company and maybe you'd sell some units to boot.
In the 90's, what you'd do more often at that point is do an IPO, and you'd all become millionaries overnight. Now, the problem is that most of these companies weren't worth the bil
New Boom Official Start Date (Score:2)
So I've missed another bubble? (Score:5, Funny)
Re:So I've missed another bubble? (Score:2)
As long as you've got the certificates in hand, then hell yeah! Those suckers are probably collectors items. Especially if Pets.com did them up cute with the reporter puppy on them.
Think I'm joking? Think again. [ecommercetimes.com]
Re:So I've missed another bubble? (Score:2)
As long as you've got the certificates in hand, then hell yeah! Those suckers are probably collectors items. Especially if Pets.com did them up cute with the reporter puppy on them.
You know what's funny? I saw someone using the pets.com sock puppet to sell insurance. I guess that's okay, since the original trademark holder is so much burning dog food.
Dude, you've missed a lot of bubbles (Score:2)
Personally, it feels like something's got to give. I'm not as well versed in economics/macro-economic history as some others here likely are, so I pose this question: have there been times of such bubbles? Yes, I know there have been bubbles in the past - tulip mania, the stock market in the late 1920s/late 1990s, SoCal real esta
Re:Dude, you've missed a lot of bubbles (Score:5, Insightful)
Maybe. However since bubbles are really a sort of cross between a pyramid scheme and a lottery the only people who are hurt are those who are not paying attention. Case in point: we sold our house at or near the peak and we are now renting. There is a pretty good chance that when we buy at the bottom we will have made 30% or more. Only people who are buying right now when all indicators suggest that prices haven't reached the bottom will be hurt. I.e. paying attention pays off! Look at basic forces. House values historically grow at 1-2% a year over the long term. If prices grow faster than that there had better be a very strong driving force or - its a bubble. Now, if you detect a bubble early and can afford the risk by all means take advantage of the idiots but be aware that what you are doing requires impecable timing or you can be severly burned!
The house bubble was created by FED policy (follow the links at http://www.patrick.net/housing/crash.html#links [patrick.net]) but I think there is a deeper problem. Our taxation methodolgy is fundamentally broken. The solution (IMHO) - the Georgist "one tax". NOTE: That is NOT a flat tax.
Re:Dude, you've missed a lot of bubbles (Score:3, Insightful)
Ahem. Tell that to those who lost their jobs because they worked for the companies that went bust (or took it on the chin) in the dot com fiasco. Or those whose retirement savings lost half their value. Tell that to the construction/realtors/appraisers/mortgage brokers who are edging closer to being jobless. I'm not saying that there's no personal respo
Re:Dude, you've missed a lot of bubbles (Score:2)
This is why I ducked out of that in 1999... (Score:2)
If
Re:Dude, you've missed a lot of bubbles (Score:2)
That's what my dad thought when he moved our family out of San Jose in 1979, after several years of solid appreciation.
Do you really think there will be a big housing b
Re:Dude, you've missed a lot of bubbles (Score:3, Interesting)
Holding on (Score:2)
Why I'm holding on to my Pets.com sock right now! Someday this puppet will be worth a fortune.
Oh, you said STOCK. My bad. If you've run out of TP you know where to go.
Over and over and over and over again... (Score:2)
Anyway, not that I'm an expert or particularly knowledgable about any of this stuff, but it seems to me that a big difference is that this time around, the companies receiving the funding tend to be much smaller and more focused. Sure, many don't have a valid business plan, but at least there are only 10-15 people running the entire show, as opposed to some of the companies last time around that felt they needed to employ a hundred to be taken serious
Eh, it may not be that different (Score:5, Insightful)
E.g., for the greed part, don't assume that all investors were unable to learn that those "internet companies" tend not to last. But that was ok. They didn't plan to hold onto that stock for ever. They planned to buy some "my_cat_photos.com" site at cents per share, hype it to insane values, then sell right before the company crashes and burns and let someone else take the loss.
(And those in the most profitable position were the stock analysts, some of which had no remorse in telling their clients "buy!" while they told their own agents "sell!" I.e., they were in a position to _create_ a bubble around a company, and profit from it.)
A lot of the hyping dot-com stock you may have read fell basically in this category, and partially in the dishonesty one. It's not that those people were too stupid to see that a company without income can't survive. They were hoping _you_ would be stupid enough to believe them and help them pump up the share price. When they proclaimed an income-less and busines-plan-less new economy, well, the money making part of that economy was actually very present in their mind: it was the stock market. Namely hoping that some other dolt would buy the pumped up shares before they crash and burn.
And a lot of the posing, posturing and seemigly illogical behaviour of the dot-coms actually fit that hype-and-dump pattern. Now _some_ of the company owners may have blown money on gazillions of employees, Ferraris and buying football teams just out of stupidity. ("Look, ma! I'm someone! I can throw money out the window just like the rich guys!") But for a lot of them and for some VCs this simply constituted a kind of behaviour they could pump before they dump. It could be hyped as a young, dynamic, fast-growing company that's poised to take over the world. At the rate they're growing, they'll soon be the next Microsoft, and you'll be sorry that you didn't buy their shares when they were cheap! The fact that the only "fast growing" part were the expenses, well, they hoped you wouldn't notice that.
E.g., for the dishonesty part, one of the things that started the bubble was... advertising money. See, in the early day of the Internet web sites had maybe one ad banner on the main page, and some of us even clicked on them. And ad rates were based on this in more than one way. I.e., not only did the advertiser only count on paying for 10,000 or 100,000 views of that ad, but they also counted on the relatively high return on that investment, since people hadn't been yet buried in obnoxious ads and desensitized to them.
But in true "tragedy of the commons" fashion, someone figured that they could rake in twice the money if they put two ads on their site. Or 10x the money if they put an ad banner on each page. Some went as far as to imagine a site which would have a tiny content frame in the middle, while the rest of the screen would be filled by wall-to-wall ads. I know I've actually worked for one.
Some were even less honest than that, and also generously inflated their page view statistics. If you believed them, some sites had millions of pages (and thus ad views) served per month, even though they were barely more than someone's blog site. And not even the blog site of someone famous.
So basically what started the bubble was the idea that "hey, looky, we can make a bunch of cash by defrauding the advertisers!" Except that in the resulting 3-way con-war between websites, ad providers, and the companies paying for the ads (with the ad providers trying hard to cheat _both_ the webmasters and the paying customers), the prices per ad dropped like a rock, making that gold mine a
Re:Eh, it may not be that different (Score:2)
In order for dishonesty and greed to work, you need stupidity.
Over on the other thread, we're talking about how SOX may be more trouble than it's worth.
SOX was created, partially as a reaction to the dishonesty and greed of the dotcom bubble (after all, Enron was a dotcom - not necessarily a computer or IT company, but their business was Energy Trading. Via the internet. Their scam was surfing on t
not the market that's bubbling... (Score:5, Informative)
Re:not the market that's bubbling... (Score:5, Informative)
We are NOT seeing a rise? Huh?
DJIA http://www.marketwatch.com/tools/quotes/intchart.NASDAQ http://www.marketwatch.com/tools/quotes/intchart.
NYSE Composite http://www.marketwatch.com/tools/quotes/intchart.
Each chart includes the last 12 months. While whether or not this data is a bubble is indeed debatable, the fact is that the market has been on a strong long-term rise for at least the last year.
Nope (Score:2)
http://finance.yahoo.com/q/bc?s=USDCAD=X&t=1y
The dollar's just falling.
Re:Nope (Score:2)
Re:Nope (Score:3, Insightful)
Re:Nope (Score:2)
As soon as mortage rates rise, then watch out. A modest 3% rise from 6% to 9% would mean that your monthly mortage payments have increased by 50%, which will force panic selling by those without fixed rated mortages, and will drastically reduce the number of people who can afford ho
Re:Nope (Score:2)
What country do you live in???
Re:not the market that's bubbling... (Score:2)
Click on 5y insted of 1y. We're still *down* even though we're trending up.
i n f l a t i o n ? (Score:5, Informative)
http://finance.yahoo.com/q/bc?s=MSFT&t=1y&l=off&z
That's the price of gold compared to MSFT (just out of interest) for the last year. Gold is traditionally a very good (if not excellent) hedge against inflation and shows the devalueing dollar situation pretty well right now.
Re:i n f l a t i o n ? (Score:3, Insightful)
Just as "Real estate is the safest investment you can make" is no longer true, gold its self is in a bubble. There is absolutely no reason gold has doubled in price in the past few years. For those who didn't click the link, gold is now going for OVER $700 AN OUNCE. That's insane.
Just like everything else in the world, the price of gold is regulated by supply, demand, and risk factors. Gold is getting pricey because there's lots of demand, because people listen to people like you, who say "gold is the e
Re:i n f l a t i o n ? (Score:3, Interesting)
Re:i n f l a t i o n ? (Score:2)
Not when it's priced the way it is lately, based on pure speculation. Gold prices will revert to the mean soon enough (drop like a rock), while the value of the dollar will continue to drop gradually.
Re:i n f l a t i o n ? (Score:2)
Re:not the market that's bubbling... (Score:2)
Re:not the market that's bubbling... (Score:2)
One can only assume the second sentence is meant to mean "a good indicator of what's about to happen", in light of the first sentence. Which is still wrong.
Look, think about where gold prices were five years ago and imagine the worst possible inflation one could reasonably expect this decade based on past trends. The increase in the price of gold isn't just a re
Re:not the market that's bubbling... (Score:2)
Yes, although I am not sure we can call borrowing half a trillion dollars and throwing it up in the air and seeing where it falls an "economy".
Oh, puh-*leese*! (Score:5, Insightful)
Since my own existence only dates back some 40 years, I can't claim firsthand experience of the Great Depression, but comparisons between the Dot-Com Bust and the Great Depression are so overblown that it ain't even funny. From the usual suspects [wikipedia.org]:
Almost all countries were affected; the worst hit were the most industrialized, including the United States, Germany, Britain, France, Canada, Australia, and Japan. Cities around the world were hit hard, especially those based on heavy industry. Construction virtually halted in many countries. Farmers and rural areas suffered as prices for crops fell by 40-60%. Mining and lumbering areas were perhaps the hardest hit because demand fell sharply and there was little alternative economic activity.
I guess it's to be expected, though. We're supposedly in this War on Terror [gp.org], but so far, I haven't been asked to participate in a single Meatless Tuesday [rice.edu]. Where do I go to get my ration cards [oldchesterpa.com], anyway?
Re:Oh, puh-*leese*! (Score:2)
Re:Oh, puh-*leese*! (Score:2)
Less alcohol... (Score:2, Funny)
People love bubbles (Score:4, Insightful)
'The bubble generation is much more attuned to the fact that things can get really out of hand,'
If this is true, it'll last another 5-10 years before we forget all lessons learned (correct or not) and return to business as usual. Our species is really good at self-deception, group-think, extrapolation forecasting, and greed, with varying results. We deluded ourselves regarding tulips, electronics, radio, the internet, and who knows how many other bubbles; we will do so again.
For a couple very good talks on the self-deception issue (somewhat OT), listen to Robert Trivers [itconversations.com] and Nassim Taleb [itconversations.com]
Re:People love bubbles (Score:5, Insightful)
I'd say we are best at greed. I remember in 1998-1999 myself and other people saying that it was a bubble and there would be a major correction or crash and I am no financial genius. What happened was that people who were financial geniuses knew it was a bubble but figured they could get out at the last minute and still make a killing. Meanwhile, they kept telling everyone else it wasn't a bubble in order to get everyone else to put their money in the market and sustain the bubble a little longer. They managed to keep things going for years after it was obvious that it was unsustainable. A lot of those financial geniuses came out smelling like roses while us schlubs lost money.
What is worse than the people losing money is that the market is in a sort of exhausted state with no direction. People have no where to put their money except into real estate, driving those prices up into another bubble. A real estate bubble was the last phase of Japan's economy after it's boom in the 1970's and 1980's before it went into the never ending slide/doldrums that it is in today. There needs to be investment into something that creates new ideas, new wealth and new real growth not new McMansions and impotence cures for aging baby boomers.
Fields where investment would be nice but probably won't happen:
Alternate fuels, Safe nuclear fission power plants or practical fusion.
Something else that won't happen:
Reorganize our entire suburban sprawl into small tightly integrated cities with housing next to workplace and markets. This would limit the need for cars to go everywhere. If people walked more we would have less need for a hydrogen car, or electric car or any kind of car. It would probably also help with the obesity epidemic, asthma epidemic caused by air pollution and all the health problems that go with it.
Really pie in the sky would be:
Cheap space flight, space elevator, asteroid mining and orbital solar power plants.
These would not be bubbles because something that would be productive and self sustaining would come from the investment, not a burst of activity and spending that leads nowhere.
Re:People love bubbles (Score:2)
Alternate fuels, Safe nuclear fission power plants or practical fusion.
There is a lot more private sector money going into alternate fuels right now. Probably not nearly enough, but an increasing amount. My impression is that 'safe nuclear fission' technologies have come along way; the main obstructions there are political (which may be a good thing, on balance- I'm on the fence re: nukes right now, myself). On the fusion front, there's been
Re:People love bubbles (Score:2)
Did you write this with a straight face? Forward-looking leadership? In a government? While I am not in favor of a crackerbox city existence in big cement buildings like 50s communist Russia I do belive there are some very basic foundational things that can be done in growning communities to
Re:People love bubbles (Score:2)
It is rare, but it does exist [state.gov] from time to time.
Dude, you ain't Greenspan. (Score:5, Interesting)
Let's see... Energy and home prices skyrocketing. Low unemployment, but virtually no improvement in salaries. The new bubble? It's healthcare, baby. Every market is targeting the baby boomers and milking them for as much money as possible, and when you combine that with a generation of people who have been saying "I deserve the best care no matter what the cost." forever while sitting on their lethargic hinds 24/7, we've got the current recipie for disaster.
Caution? Bah. It's top-heavy protectionism.
Re:Dude, you ain't Greenspan. (Score:3, Insightful)
Is that really a bubble though? Health care hasn't reached absurd levels because of positive-feedback of speculation. Pending disaster? Milking a demographic for everything you can (wait, since when is this NOT the norm)? Sure, but I don't think that's a bubble.
Re:Dude, you ain't Greenspan. (Score:2)
Perhaps the government will try to divert even more cash from the younger generations, but there is a limit to that.
Re: (Score:2)
Re:Dude, you ain't Greenspan. (Score:2)
Bad Time? (Score:2, Insightful)
I don't necessarily agree with that statement either, but not for the same reasons many others probably don't. It might be a bad time to try to start a long term company online, but if you have a one-two year get rich quick idea that will most likely work what do you have to lose?
Re:Bad Time? (Score:2)
You know...if I could only find some sort of product, I bet that I could sell that product on this internet thingy and make some money!
What do you have to lose? (Score:2, Insightful)
Bubble behavior is predictable.... (Score:3, Insightful)
Regarding the stock market, historically, whenever a new technology/infatuation arrives on the scene, tons of money get thrown in, the market gets irrationally exuberant, stock prics go way up and then implosion. Stock prices get corrected and after the dust settles the new golden age begins from whoever is left standing. In this case that's eBay, Amazon, Yahoo.
No one "loses" money either. If you invested 10K in the market and your investment rises to 100K and then drops back down to 8K, you only lost 2K and only then if you decide to cash in and take the loss. For all those people who "lost" money, hedge funds made a ton so it's more of a redistrbution from the hands of the many to those of the few as opposed to a "loss"
What screws people is no exit strategy. The stock buying public is always right during the trend but never are they right at the top or bottom. Can't be satisfied with a 300% percent gain...
things can get really out of hand ... (Score:2, Insightful)
Tech Bubble? (Score:2)
Re: (Score:2)
The IT industry (Score:3, Insightful)
Where as the IT industry just started to come of age. It started to mature in leaps and bounds, this won't stop untill we hit the peak where any more power is just pointless (photorealism all round). It's more or less like the old steam engines. A lot of people saw "improvements" all the time and went "Wow this has got to keep going! It'll never stop and I'll become super rich!" The same is happening now, and will continue to do so forever.
Greed will make a bubble in every industry that shows any majror improvements, right now IT is the favoured thing. Tomorrow it maybe nano technology, whatever it is the same pattern will repeat. Idiots won't listen, they'll do the same shit they always do and they'll get lucky once or twice and assume they will do it again.
Re:The IT industry (Score:2)
I'm waiting to see what happens.. but as a 20 year old geek with a love for IT I'm starting to see my future being rather.. unlucky..
The new bubble is already popping (Score:3, Interesting)
The real problem is that all these players are chasing the same pot of ad revenue. Most of them are bottom-feeders off Google AdWords or something similar. They're not selling anything themselves. There's no new product.
Re:The new bubble is already popping (Score:2)
-matthew
Bubbles - it's about VCs, not the entrepreneurs (Score:2, Interesting)
VCs were burned badly and they examine companies far more closely than before. The money is flowing again, but it's targeted much more towards real innovation and practical business models - not vague ideas and businesses built t
Yea ... that's why gold is different this time.. (Score:2)
Yet people are piling on -- even tho it has little more intrinsic value than osterich eggs did in the 90's.
People are scared, then cautious, then risky, and finally greedy.
Then they get hammered- a whole lot of people lose a lot of money, and then they are back to being scared.
I'm up 32% over the last 24 months and I'm down to 50% exposure to this market.
Google is the only "bubble" left (Score:5, Interesting)
Google selling also pushed up California's income tax receipts by 12 percent in 2005.
Things are getting a little out of hand, dont you think?
Google insiders are now selling twice as much pet year as Microsoft employees, even though Google has less than 1/10th the profit as MSFT.
I've noticed... (Score:3, Interesting)
Fortunately, I don't see nearly the same kind of money changing hands as in the last bubble. Most of it seems to be "grass roots" kind of stuff. So perhaps the hype will just die down with fewer bankruptsies when the dust settles.
Just my $3.
-matthew
Bubbles (Score:2, Insightful)
Re:Bubbles (Score:3, Funny)
Right, and in this current climate, the irrational exuberance seems to be limited to web developers (web 2.0, ajax, etc). So there isn't too much to worry about. Just a lot of smart people wasting their time trying to immitate desktop applications in a browser.
-matthew
Web 2.0 (Score:2, Informative)
One press article (http://www.businessweek.com/technology/content/ma r2006/tc20060313_860688.htm?campaign_id=topStories _ssi_5) talks about Web 2.0 as a coll
not a chance (Score:3, Funny)
Many techies were seriously debating whether there was any point to higher education because of this tight labor situation.
Nowadays, it's very different. Most of us feel lucky just to have jobs. My salary has finally caught up with what it was in 1998. Only now, I'm not getting stock options.
We're most certainly not in the midst of another tech bubble. My take on this is that most likely, the reason for recent higher earnings has been due to the NSA buying lots of hard drives. When they've got enough, we'll be right back in the 2000-2003 toilet.
Baby boom and bust (Score:2)
Of course this is slightly tangential as to whether there is a tech sto
prayer (Score:4, Funny)
As I look out into the parking lot at the sea of import luxury cars and eat my free bagel on Free Bagel Friday, I say to myself,
I sure hope so dude. I sure hope so.
No bubble in tech (Score:5, Informative)
Where I DO see it is in commodities and certain housing markets. Metals - Particularly gold and silver - are going crazy right now. ETF [yahoo.com] stocks have opened up so you can buy "shares" in metals, and when you do, the ETF buys physical metal to store in a vault (it's just gold and silver now, AFAIK. Cheaper metals would cost too much to store) The rise of these ETFs allow any joe to buy gold and silver on a whim, thus creating a large potential of making them overvalued. Compounding the problem is that a lot of countries are getting scared by the inflating dollar and hedging their investments with gold, further driving up the price. The rise of the price due to this activity is a lot of the reason the gold & silver ETFs were created in the first place - The price activity has the attention of the public.
Don't get me started on housing in the US. I have seen this coming for three years. In the US, places in the midwest and south are going for what they should be, maybe even below - You can pick up a nice 3 bedroom 2 bath house with 1700 sq ft of living space and a good sized lot for the low $100's. These markets are safe from the bubble. But the same place out here in the SoCal city where I live will cost you at least $550,000, and that's with practically no lot. Even in the High Desert, which is on the other side of the mountains and 80 miles from LA, it will cost you $300,000 to get in the same house. Two years ago the same house was $160,000. It's ridiculous. The rise in prices is mostly due to the same mentality that caused the stock crash of the late 90's - People saw their homeowner friends building massive equity (and cashing it out to buy nice toys) and wanted to get in the game before it was too late. So they all started jumping out of the rental market and buying houses, which reduced inventory and thus drove prices up. The banks noticed the meteoric rise in equity, and they started loosening their credit criteria - They'll still make a ton of money even if the place forecloses. Pretty soon anyone who could breathe was qualifying for a home loan. Many of them could not afford a standard 30 year fixed rate loan, and so took out an ARM (adjustable rate mortgage, for those of you with no home buying experience) loan instead. So they were given a really low initial interest rate that would stay fixed for the first 5 years and then the banks would be allowed to increase it with the market.
Then came the "creative" loans. When people could no longer afford 30 year fixed or standard ARMs, banks started pushing "interest only" loans. This is basically an ARM loan except you don't have to pay principal on the loan during the fixed period (again, usually 5 years). What's in the fine print is that after the 5 year period is up, you must start paying the principal you weren't paying during the fixed period. Coupled with increasing interest rates, a homeowner could be looking at significatly higher payments.
But it gets better. Then came the "partial interest" loans. So now, not only are you in an ARM and not paying any principal, but you are also only paying a fraction of the interest every month. This is how a lot of people making $40,000 a year are buying houses that they would ordinarily need to be making $130,000 a year to afford. These are also called "negative am
Lesson learned (Score:3, Insightful)
Of course. When you're suddenly half a million dollars in debt because you leveraged options from a company whose only product was a website, you tend to learn the lesson.
Small correction: (Score:4, Informative)
Alan Greenspan is no longer the Federal Reserve Chairman...Ben Bernanke [wikipedia.org] has held the office since Feb. 1 of this year.
Re:Economics Impossible to Speculate On (Score:3, Interesting)
Re:Economics Impossible to Speculate On (Score:5, Informative)
Once? The dot-com bust was not the first bubble by a long shot.
cite: wikipedia
There are also the current real estate bubbles around the globe.
Re:Economics Impossible to Speculate On (Score:2)
I have to agree, and when I saw the summary I reacted. IMHO we haven't learned a single thing. We went from one sure-fire, get-rich quick, get in now or you might not be able to afford to get in later, frenzy to another: real estate (variable interest, interest only loans! Reverse mortgages! Rent covers 1/2 of a mortgage payment on the same dwelling but it's still somehow a long-term investment!)
I often lament just how little we learned on the
Re:Agree with article (Score:3, Funny)
Ha! I'm way ahead of you. I sold off half my 401(k) last month and invested the whole thing in a guaranteed 17% investment. I paid off one of those damned credit cards. One down, three to go. ph34r my 1337 1nv357m3n7 sk177z!
Re:Agree with article (Score:2)
Based on that phrase alone, I assume that you are NOT 59 1/2 years old. So, do those skills include paying the 10% penalty for selling your 401K $ early? :)
Re:Agree with article (Score:2)
Cashing out a retirement account, IMO, is the last thing to do. If your house is in foreclosure, or you can't afford to keep the lights on or buy groceries, then, sure, cash that retirement account out. But otherwise it's probably more cost effective to do it the old fashioned way: reduce spending, live on a budget, take a second job.
Re:Agree with article (Score:2)
Mine matches up to 3%, which is al I'm putting in becasue I'm a starving college student, but even if I took it out early and suffered the (I think the fund people said something like 26% taxes on it) I'd still be making money in the deal. Not compared to responsible investment, but certainly compared to hiding the money under my matress.
Re:Agree with article (Score:2)
If I'm not mistaken (and I very well may be), if you withdraw your funds at any time from a tax-deferred account you're taxes at your current income tax rate on any gains
Re:Agree with article (Score:2)
Ah, I think I was mistaken/mistyped - you're taxed on EVERYTHING, not just your gains, since the money was put in tax-deferred in the first place (regardless of when you take out the money).
Re:Agree with article (Score:2)
Note: I am using 100k to make math a little clearer.
Option A:
1: You get paid 100% and pay ~30% in income taxes on the last 3k: (3k *.7)
2: Giving you: 97% of 100k - taxes + 2.1k
Option B:
1: you get paid 97% and pay 0% income tax on the last 3k.
2: The Company matches that giving you 3k.
3: You then take 6k out and pay ~30% in income taxes + 10% in Penalties: (6k *.7 *.9)
4: Giving you: 97% of 100k - taxes + 3.78k
I think you can avoid the penalty if you
Re:Agree with article (Score:2)
My employer matches it, in effect putting $20 into savings.
When I take it out I'd get the 74% (upon recollection I think it's closer to 35% rather than 26% but I haven't talked to the company financial guys in a long time) thats left, or 14.80.
Which is better than the $7.20(made up
Re:Agree with article (Score:2)
Re:Agree with article (Score:2)
I disagree. We should be encouraging people not to borrow, period. Don't borrow on credit and certainly don't borrow from yourself. The phrase, "robbing Paul to pay Peter" rings ever so true here.
From a more rational side, borrowing from one's 401(k) does have drawbacks. If you get fired or laid off you have, what 30 or 90 days or something like that by which 100% of what you borrowed must be refunded to your account, or you're paying penalti
Re:Agree with article (Score:2)
Bar: I disagree. We should be encouraging people not to borrow, period. Don't borrow on credit and certainly don't borrow from yourself. The phrase, "robbing Paul to pay Peter" rings ever so true here
Teh grandparent got it right -- he's saying that's what I did, not that it's a good idea. I borrowed up to the absolute maximum allowed by my plan, so there's no tax penalty. To fund the loan, the plan manager sold my shares. I'll pay back
Re:Agree with article (Score:2)
Re:Agree with article (Score:2)
I'm going to guess that you aren't married? The enjoyment of shiny stuff wasn't all that great, but the enjoyment of someone else's enjoyment of shiny stuff tipped the scales in a big way.
That's ok, women live longer then men. That means she gets to support me when I'm too sick to keep working. Who gets the last laugh then, eh!? </sarcasm>
Re:Agree with article (Score:2)
You know what happens when you assume! :-p
I am married to a woman whose financial views are in line with mine. In fact, she's more on the wanting security in the sense of no debt/large cash reserves than I. I'm just more anti-debt/only buying stuff one can afford, etc.
From the GP [slashdot.org]: I didn't pay off everything. I blew some of the dough on a home wireless network, and other things
So was that wireless network for you or your better half? ;-)
Re:Agree with article (Score:2)
Re:Agree with article (Score:2)
She got the last 18 years... I get the next 18 years. And yes, I'm moderately jealous.
Re:Agree with article (Score:2)
I disagree. I won't say it's easy - I ended up borrowing through student loans about $2,500 over my four years, IIRC - but to say it's impossible is hogwash. First off, who says you HAVE to go to college immediately after high school? Why not work for a year and save? Second, scholarships are a good source of income, and there are scholarships for all sorts of things, not just academic. There's also F
Re:Agree with article (Score:2)
The key is spending less than you make tho. I live on 60% of my net- I'm trying to get that down to 50%. That means I sat with a broken TV for about 80 days before I bought a new one (ended up with a nice 55" HD for $1200 which was a great deal- it had been 1800 when I started saving).
Personally I think the ROTH is a lot better than the 401k.
1) The government MAY raise rates to 50%-- if so, you wou
Re:Agree with article (Score:2)
50% between bonds and money market (Score:3, Insightful)
As long as your stock is diversified it really doesn't matter. Short of another black monday/black tuesday you will be fine. Will you lose some money in the short term? Of course. But the market rebounds, you don't lose shares. By moving that money from stocks to bonds/money market now you lose out on the potential interest in the meantime.
All a "correction" means is that you can afford more stock during the correction. Buy, buy buy!
Re:Agree with article (Score:2)
Its also risky to invest in foreign stocks, because not only do you have the normal risks inherent with stocks, but you also have the risk of foreign laws which might be unfavorable, huge interest rat
Re:Agree with article (Score:2)
Or, sell some covered calls on your US stocks within your 401k. Sellin calls is fun
Re:Agree with article (Score:2)
See this post [slashdot.org] for my explanation.
60? While most days I FELL like I am 60 years old, I am actually 39 (. I am just playing a short term reallocation to protect my investments from the impending US bear market (which I expect to see soon). After the bear ends, I am putting all of my bond and money market allocation back into the Stock Market.
Re:Agree with article (Score:2)
Hope you didn't move any of it into Chinese equity or bonds. Chinese banks have bad debts equal to 40% of their GDP. The Chinese government has been trying (unsuccessfully) to sweep it all under the carpet. When their banking system finally melts down, it ain't going to be pretty.
Re:You do realize... (Score:2)
Here [marketwatch.com] is part of my reasoning. I have been investing 20% international (evenly split between Europe and Asia--mostly UK and Japanese companies) for 2 years. So, taking it to 30% international stock (again, mostly UK and Japanese companies) and 10% in an emerging market bond fund wasn't that big of a deal to me. Trust me, it's not like my 401K has mil
Re:You do realize... (Score:2)
Yep. I am. And, it will only be for a while. As I have stated before, after the US Market correction (which I expect to see before the end of August this year), I will return to the US Market.