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We Liquidated Our Target Retirement 2050 Fund

Posted By Jim On 08/10/2007 @ 4:06 pm In Investing | 28 Comments

My fiancee and I put a portion of our savings, that is those funds aren’t earmarked for future taxes, weddings, or other purposes; in a Vanguard mutual fund account that is fully invested in the Vanguard Target Retirement 2050 fund (and a high yield savings account [3]). The latest rattlings of the stock market have unnerved me and while my brain is telling me “think long term,” my heart is telling me to sit out the next month or so and let everything settle down. I know a lot of you will probably respond by saying “you should be thinking long term! why are you trying to time the market!?!?” and a less open blogger would’ve probably never mentioned it, but I feel that it would be remiss if I didn’t share with you my decision and why I did it.

1. The Fund Isn’t Long Term

I’m still in the target retirement funds via my SEP-IRA and my Rollover IRA and we haven’t touched our 401k allocations, we’ve sold the fund in this particular account because it’s not a long term account. The purpose of the fund was to get some stock market exposure instead of putting it all in a high yield savings accounts.

2. We’re Not Panicking

Panicking would’ve been pulling out a little over a week ago when the first rumblings really started, with Bear Stearns telling everyone two of their hedge funds basically went bankrupt. More panicking would’ve coincided with American Home Mortgage firing 90% of its employees and filing for bankruptcy. You would’ve had yet another opportunity to panic if you sold it yesterday because BNP Paribas, France’s largest bank, froze the assets to three of its sub-prime funds. Today? The Federal Reserve pumped $38 billion dollars of liquidity into the banking system… so we should be good right? Now is exactly the least panicky time to liquidate, so it’s not panic causing our decision.

3. The Climate Looks Awful

Dollar at historic lows, China pushing us around with all the dollars they hold, slow housing market, jumbo loan rate hikes, liquidity crunches… I don’t know how many warning signs you really need to start acting when thinking short term. Take this very simple scenario… in October, $50 billion in adjustable rate mortgages [4] will reset. Let’s say 10% of those folks will not be able to make their payments – that’s $5 billion in inflated property value that will be foreclosed. How much will the banks be able to get for them? Mortgages will be harder to come by, they’ll have higher rates, and so if you assume that they get 90% value on that $5 billion, that’s $500 million dollars up in smoke on the bank’s balance sheets. I might not be a banker, but those percentages sounded rosy to me and that analysis, again I’m not a bank, makes my stomach turn.

What do you think? Was this a mistake? If so, please explain why because I think this issue is on the minds of quite a few people.

(Photo: thewalkingirony [5])

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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/we-liquidated-our-target-retirement-2050-fund.html

[3] high yield savings account: http://www.bargaineering.com/articles/top-5-online-banks-savings-or-checking-accounts.html

[4] $50 billion in adjustable rate mortgages: http://money.cnn.com/2007/07/09/real_estate/resets_are_coming/index.htm

[5] thewalkingirony: http://www.flickr.com/photos/thewalkingirony/3051500551/sizes/m/

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