Market troubles: part 2

Now that the Dow took a bit of a nose dive, and panic is widespread, the question is: what is an average investor to do? Convert all your holdings in cash? Withdraw all the cash and keep it in a safe deposit box, knowing that, as banks start to fail en masse, FDIC will not be able to cover all the deposits(it's my uneducated guess) and will have to impose a withdrawal limit on your deposits? I certainly felt this way yesterday.

Nevertheless, despite all this doom and gloom and threats from the Wall Street that economy will collapse if they are not given those $700 bln, I thought to myself: where would all global investors invest their money if not in the US? Will it be China? China is a rising giant, but still almost completely dependent on exports. The rest of the emergent markets are very volatile, unpredictable, and subject to political turmoil( Eastern Europe)).What about Western Europe? Economically speaking, they don't have the same prowess as American economy due to over regulation and big shadow of their governments cast on their economy.
So it seems that the American economy is something those investors cannot live without.
And after that bloodletting on Wall St. on 09/29, they flocked to... US Treasury bills!

Besides, even there will be a massive collapse of the current financial institutions, there will be fast growth of the new type of financial industry, which is not burdened by the collective "sins" of the old good boys. That will happen just because the American economy is the most flexible and resilient in the world, and no banker would want to pass the opportunity of a lifetime.

Therefore, we probably should continue staying the course and even consider getting into a buying mode (I can't believe I'm saying this..). But will see in, say, 5 years, what will be going on

Market troubles. What next?

After recent tumultuous days of bankruptcies, forced sales, mergers and nationalizations I have 2 questions: first, what does this all mean for a long term market outlook (this is a question from an amateur investor in me), and, second, is it possible that health insurance companies are facing the same grim prospective as their cousin AIG?
I suspect that the answer to my first question is that , eventually (maybe after years of trouble and stagnant growth) market will rectify itself. Then again, after so much governmental intervention, would government play a much, much larger role in the market?
Now, the second question: is it possible that at least some health insurance companies which had a misfortune of investing their collected premiums into anything that is mortgage-related are also on the brink of insolvency? Would then they be bailed out, effectively bringing us to a one-payer model? And what would that mean for doctors?

Do you have 401k?

Most of us who work for a salary have (or should have) 401k's. Now, obviously, the old advise was to contribute to it as much as you can. And I think it's still a valid advise. The problem I always had with my 401k is that is so overpriced. Even index mutual funds in it had an expense ratio of at least 0.25%, while the same can be had for 0.17% if you would go to, say, Vanguard. Oh well, I thought, that's a price of having a 401k with the 401k provider (which is one of the bigger ones, too).
However, recently several big players started offering( gulp..) ETF-based 401k. ShareBuilder, for example (which merged with ING not long ago). With ETF-based 401k potential savings on expense ratios, 12b-1 fees etc. etc. are just mind-boggling.
So if switching from traditional mutual fund-based 401k provider to ETF-based one is a possibility, I would grab it!

End of conspicuous consumption?

I could not believe my eyes when I saw this article about people becoming frugal all of a sudden. There was even a mention of a Great Depression mentality of extreme frugality (rhyme unintended)
http://www.chicagotribune.com/business/sns-ap-consumers-changing-habits,0,5126139.story

People trying to get rid of their gas-guzzlers. Discounters see brisk business. Bicycling to work. Will we see the death of conspicuous consumption and see the dawn of ...living within one's means( and maybe even below those means)?
It was 30 years overdue but better late than never.

Lessons of IndyMac

Now that the big banks started to fold, the word FDIC came up. It is a federal entity insuring your bank deposits. Insurance is up to $100k PER DEPOSITOR. That is , if you had multiple accounts within the same bank, only $100k out of all of them will be returned to you ( the limit for bank IRA is $250k- I guess, some people still have those). By the way, it is said that by bailing out IndyMac depositors, FDIC used 10% of its reserves. Is it possible for FDIC to run out of money while bailing out banks that will be folding in the near future?

Now, with some brokerage houses potential to fold, I did some investigation about their insurance. They don't have FDIC, but they are insured by SIPC (Securities Investor Protection Corporation) It has a website www.SIPC.org Brokerage accounts are protected for up to $500k in case of a broker-dealer insolvency( limited to $100k for claims for cash) Also, a brokerage might have some extra insurance from private sources (say, Lloyd of London)
That, to me, means you shouldn't really hold more than $500k( hats off to those who have that much in retirement funds) at any particular broker-dealer, no matter how reputable and old that broker is.
Market forces have no regard to reputation

Morningstar study: Do fund managers invest their own money in the funds they manage?

Another interesting article from Marketwatch.com:

http://www.marketwatch.com/news/story/most-funds-managers-have-none/story.aspx?guid=%7B907D8FC0%2DA948%2D415A%2D8133%2DF57A365CC367%7D

Yep, those fund managers won't invest their own money into the funds they manage. And that's taking into consideration life-cycle funds ( suppose, those managers are very young and they happen to manage the fund designed for people about to retire) and state-specific bond funds.
I can think of only 2 reasons: either they have an access to much better investment options (such us private equity) than the people investing in their funds, or they know something about the funds they manage the rest of the investing public don't know.
I won't eat at a restaurant where its chef doesn't want to eat its famous entree.

Graduating residents and fellows: financial challenges

Now when the old academic year is over (and the new one just begun with the influx of freshly baked interns), the newly baked attendings, after being "institutionalized" for so many years, face financial challenges they never dealt with before: making on their own.
No more resident's salary. No more ignorance of the issues of one's health or malpractice insurance. Maybe moving to the new place. All of these issues can be tackled successfully based on their previous experience of moving from a college to a med. school and on to the residency, often in another part of the country.
What our residents are utterly unprepared for is what to do with their sudddenly (and seemingly) larger paycheck. The theme I hear over and over again is " What should i get now when my old Honda gave up the ghost: Lexus or Infiniti?" All these years of semi-voluntary and semi-imposed from outside financial self-restraint are catching up with our residents... er, attendings. And it is hard not to go on a spending spree with your first real paycheck in 11-12-13 years. And it's fine , I guess, to get some stuff you're really craving, as long as you keep the bigger goal in mind: financial freedom.