When Forever Stamps were first introduced, lots of people seemed to think of them as a great investment. A Forever Stamp is sold at the current 1st class postage rate (41 cents when introduced) and is valid 1st class postage forever, regardless of the cost of 1st class stamps in the future.The investment angle works like this: Buy a lot of Forever Stamps at the current rate and then sell them for a price between what you paid and the new rate once stamp prices go up.

Here’s the problem…

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Although your 401(k) is better than not saving for retirement, your investment options there are limited to the offering of your particular plan. You likely have a dozen or less funds to choose from. The likelihood of those offerings being the ones you would have chosen given choice over all investment options is basically zero.

So my retirement investment allocation goes along these lines: Make getting the company match on your 401(k) retirement investment priority number one. Even with poor choices in your 401(k), the company match is free money. If your company match gives you fifty cents on the dollar, that’s a 50% gain on your investment regardless of the performance. Better matching means even better gains. So contributing enough to get the full company match is a no-brainer.

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The recent volatility in the stock market, along with what appears to be a sagging economy, has led a lot of people to believe that the crash of 87 is an event likely to repeat. Of course, given a flimsy economic stimulus package and one day of positive gains on the stock market, many people are already saying this crisis has been averted.

Short term predictions are mainly a guessing game. There are just too many variables to accurately say what the stock market may do in the next days or weeks. Longer term trends are easier to read and thus make more accurate predictions.

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Using stops gets more complicated when trading options because options tend to be more thinly traded. So you might set a stop for $3 on an option that has a bid of $3.10 and and ask of $3.30.

As the underlying stock declines, the bids and asks may decline together without ever being met. So the ask might go to $3.20 when the bid is at $3.00, $3.00 when the bid is at $2.75, etc. If no options are actually traded in that range, you can see how the trend might continue until the options are worth much less then your stop price. The option might not actually trade until the the bid and ask are much lower.

The intent of your stop was to place your order when the bid got down to $3.00 or lower, but the possibility that the option doesn’t trade at that level means that your stop is useless. So pay extra close attention if you use stops for options. You can’t rely on them to protect you nearly as well as you can for more heavily traded stocks.

Stop orders can be used to help you protect gains or limit losses when selling. Setting a stop price means that a sale must happen at or below that price before the rest of your order is filled. So if you had a stop order set for $50, then your order would become a market order as soon as the stock sold at or below $50. Market orders can be risky in this case, though, since a single blip in a stock price could cause you to sell prematurely. Also, if the stock is dropping quickly, your market order could be filled at a much lower price than the stop was triggered at. See my limit order post here.

Using a stop limit order provides some protection of this, but with a cost attached. Let’s say you had a stop set at $50 with a limit set at $51.00. Then if the price dropped to $50, and your stop was met,

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The current state of the stock market can leave even the most fearless investor a little nervous. The uncertainty and volatility can be scary. Of all the different investment methods I use, there’s only one that I don’t worry about in such times: the one built on dollar cost averaging.

By automating that portfolio, I don’t have to think about it. I chose companies whose long term prospects looked appealing. As such, I don’t need to think about the day to day prices of the stock or worry about when to buy or sell. When the market takes a big hit, like it has recently, I sleep well knowing that my automated contributions are buying larger amounts of the stocks that I chose. Like anything else, when the price of something you want to buy goes down, that’s the time to load up on it. A downturn in the market is like all of your favorite stocks going on sale.

My overview of Dollar Cost Averaging is here.

The contribution limits for Roth and Traditional IRAs for 2008 are:
$5,000

The Catch up provision brings the limit up to $6000 for people aged 50+.

Note that those with high incomes may have reduced limits for Roth contributions. Married couples with adjusted gross incomes above $160,000 can’t contribute to a Roth, for instance.

401K Contributions Limits for 2008 are:

$15,500

The Catch up provision brings the limit up to $20,500 for people aged 50+.

Socially Responsible Investing (SRI) is gaining a lot of popularity. The practice involves trying to maximize financial return while investing in companies that are deemed socially good. Such companies tend to favor policies of environmental friendliness, workplace diversity, fair treatment of workers, etc. Many socially responsible investors also avoid companies involved with alcohol, tobacco, and gambling as well as big oil or military contractors.

Whether or not such a strategy is “worth it” to you probably depends on how you define worth. If your goal is to make as much money as possible, then socially responsible investing

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Investing in your retirement is a smart thing to do. As defined benefit plans give way to defined contribution plans, the onus of retirement is more and more in our own hands. Gone on the days when being a faithful company man meant that you’d be taken care of in retirement.

Something to remember though, is that there’s more to investing than just retirement. Having a healthy mid-term investment portfolio is also important. If you’re young, it may be even more important than retirement savings. Just like disability insurance is more important than life insurance when you’re young, so too is non-retirement investing.

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