Raise or 401(k) Match?

A co-worker and I were talking the other day and we started discussing the pros and cons of getting a salary increase versus a 401(k) match.

Our company cut both in 2009 and there’s no shot that we’re getting both raises and reinstatement of the 401(k) match.  Frankly, I’m not convinced that we’ll get either.  We’ll probably find out in the next month or so if there is any benefit increase for 2011, though as I said, I’m not holding my breath.

I’m curious as to what the thoughts are as to which is better.  My co-worker was squarely in the corner of the 401(k) match, as the tax benefits and encouragement to save for retirement outweighed the benefit of having a larger paycheck.

I agree with him on these points, but he went so far as to say that a 1-2% 401(k) match would be more favorable than even a 3% raise.

This is where I’m not convinced.  I figure, even with the tax implications, I could get a 3% raise, dedicate 1% of that to increased contributions in the 401(k) and still end up with probably 1.5% more take home pay.

His argument (and again, it was hard to disagree with him) was that, while he and I would probably dedicate some or all of a raise to a 401(k) match, the majority of people probably wouldn’t, and would just take home the money (and spend it).

What do you think?

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Do Any Of Us Have A Chance In The Stock Market?

Ever since the ‘flash crash’ in May, where the markets dropped 10% in a matter of minutes only to recover most of it back in just a sudden fashion, I’ve been spending a little more time watching and understanding the market.

What I have found I don’t like.

It seems that computerized trading has taken over the market.  In fact, this computerized trading is blamed for the ‘flash crash’.

It also seems that computerized trading is responsible for most of the trading activity that exists.  So, when you look at the volume of shares traded across a market like the Dow or Nasdaq, chances are most of the billions of shares traded are not done so by humans, but rather by computers.

It turns out that many of the large investment houses have set up computers, with super duper secret algorithms, that perform many of the trades that take place.

I’m not sure how I feel about it.  Actually, I am.

I don’t like it.

It seems that there are a lot more shares controlled by computers than there are controlled by anybody that’s actually watching things.  While there is someone in the background entering the algorithms or kicking off a trading program, it still means that there are traders out there who basically control the market.

This concerns me a great deal.  I think the thought of exchanges being handled by barking out orders and holding tickets are long gone.  Those days are behind us.  It’s all done now with the hum of a computer.  The quiet hum of a computer and a couple of clicks can cause just as much frantic activity as used to take place with a lot of shouting, pushing, and excitement.

I don’t know about you, but that scares me.  It makes me think that there isn’t much hope for those trying to make money in the stock market, especially when you consider things like broker transfer fees and other costs that whittle away at your money, on top of all the jobbing done by the computers.  It certainly doesn’t bode well for the ‘buy and hold’ investment strategy, the same one that we were told time and time again would bring us out ahead in the end.  After all, if I play chess against a computer, chances are the only way I’m going to win a majority of the time is to set it on ‘easy mode’.  Can we really play ‘trading’ against these computers and hope to win?

Because I don’t think there are any of these computers set to ‘easy mode’.  That’s one thing I’m sure of!

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Is This Stock Market Downturn For Real?

The market has been in a downward spiral for much of the last several weeks, losing over 10% of it’s value.

I’m curious as to what people think, whether this is for real.

I personally think the market has overreacted several times over the past couple of years.

When it tanked back in 2008, I thought it went down more than it should have.  I think we were due for a correction especially with the recession and the downturn in housing.  However, I felt that the Dow should have probably went down to around 8,000 when in fact it went down to about 6,500.

Overreaction.

Similarly, when it went back up over 11,000, I thought that too was drastic.  I thought going back up to 9,000 or 10,000 was probably right.

We’re in that range now but unfortunately we’re in another downward trend?

Will the market overreact again? Probably.

I’m actually betting that it will.

I transferred about 60% of our retirement fund from an aggressive blend to a stable market fund.  I did this the day of the big ‘glitch’ when the market lost 10% in a matter of minutes but recovered over half that back.

Since then, I’ve been looking pretty smart as I’ve avoided a pretty big hit on the amount I pulled out.

We’re actually in a lockdown period for our 401(k) at the moment because they are transferring our plan between investment companies, so even if I felt that the market was due for a rebound (I don’t), I am unable to get back in for at least a couple of weeks.

What do you think?  Are we headed further down and if so, will the markets correct to where they ought to be or will they overreact?

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