In the summer and early Autumn of 2008 it seemed like no matter where your retirement funds were allocated, your yield was sky-rocketing.
You probably began contributing even more funds in hopes of increasing your gains. But a perfect storm was brewing due to certain factors such as: Over-valued stocks, technological issues in the trading system and as a result, the market crashed and burned furiously, taking with it perhaps half of your investments or more! It was literally: A Fall (crash) during the Fall (season). There is no use lamenting it now, we need to get back to where we were and can literally not afford to waste time but instead focus on recouping our funds.
In the past it was safer to be less diversified, but no longer.
In previous articles and consultations, I have advised to be diversified first and foremost. In regard to retirement, and depending on your age, I would advise you to take more critical action if you fell into the description above. You may need to take on a little more risk than you would normally want to take at this point, while remaining responsible and disciplined. Since you have lost perhaps 10 years of savings, you need to make that up by investing the way you would have 10-20 years ago.
Take a look at your investments, review their charts and try to decide which companies you think have peaked, pick one or two and sell much of them.
You may want to consider taking a certain percentage of your retirement funds, (but not from your IRA- as there are penalties and taxes for withdrawals before the appropriate age), but rather from other portfolios you may have outside of the actual IRA. Remember, I am not talking about all of them, but only a percentage. Since you need to pull together some money to do what I am about to suggest, you need to sell off some things. Research those companies that are on a fast rise to the top. That’s right, you need to Speculate on perhaps a fast food chain (CMG) or tech stock (AAPL) that is exploding, but I don’t want you to buy it. Instead I think you should consider buying Call Options. Go to a site such as Yahoo Finance and get quotes for the options on something you are interested in. Check out the price for “in the money” calls, not at the money or near the money. This may cost a bit more than at the money, but is a little more secure. Next, choose the expiration date for the appropriate strike price at least six weeks out but not more than eight weeks out. Since options expire the third week of the month, this must be based on the time of month you are in when doing this. If in late-November, I recommend getting the January ’11 call. This will allow sufficient time for the price to gain momentum and tends to be safer than being only a few weeks away. You may want to get as many options in this as you can stomach, or do this with several (2-3). But don’t take on more risk than you can handle. If you were to do this with 2 companies and bought 2 each, (each one granting the right but not obligation to benefit from the increase for 100 shares), then you would have the power of 200 shares at your disposal for a fraction of the price. If you chose wisely (and with a little luck too), you will have gained a few thousand dollars very quickly.
The final stage of this plan is taking the profits and reinvesting them the same way with different companies, but taking the original capital and reinvesting it in your IRA to avoid additional taxes. You will hopefully experience that you have recovered much more quickly than staying primarily in stock ownership. Once you get to where you need to be financially, you can go back to the method that was working for you prior to the crash.