The Beginning

I have thought about starting a blog for a while. I remember thinking, "It would be nice to have a space for personal reflection, but what am I going to write about?" After giving it some more thought I decided that I will concentrate on the various financial topics that interest me and my education within this field.

Today, my mother asked me for suggestions concerning her retirement account. As a federal employee she has the option to invest in 5 funds which reflect various indices such as government securities, common stock, small-cap stock, international stock and fixed-income. She is able to decide on the allocation of her money between these funds. Since her entire account was in the various stock funds throughout the year she suffered some losses (as most other investors, including myself) and she was hoping to prevent further carnage to her retirement money.

At first, I looked over the government fund - it invests primarily in treasury bonds with a goal of consistent returns that are beating the inflation growth. This seemed like a great fund for the current markets. The other non-equity option was the fixed income fund (similar to the LBA Index) which invests in a mixture of government, corporate and asset-backed (mortgage-backed!!!) securities. These days, I try to stay away from anything that has the word "mortgage" in it unless it's preceded by the word "short". Next, I moved on to the equity funds. After comparing the performance of the S&P500, Vanguard Small Stock Index and Fidelity International Stock Index I decided that the fund which reflects the S&P would be the safest of those 3 choices. I had 2 reasons for this : 1) small cap firms are more prone to failure than large blue chip companies and 2) some international markets are suffering more than the U.S. right now - look at Iceland and Russia: both are halting trading on a daily basis and Iceland is on a brink of bankruptcy.

After evaluating this information I suggested to my mother to invest 70% of her money in the government securities funds and to transfer the other 30% into common stock index from the international fund. I think this will provide solid protection for most of the money, but at the same time it will be able to capture some of the upside in case if the market does go up in the next few weeks. At this point, I don't know if that was the smartest decision (what if the bailout plan actually works and the market flies up?) but we can only wait and see. I will reflect on this in a few days.