It's time for a few predictions sure to hit the bull's-eye in 2010.

I predict, unequivocally, that the stock market will go up, or down or sideways (or all three at different times) in 2010. That's all anybody can know, even ifself-styled "gurus" try to delude you (perhaps delude themselves) by claiming they can divine the future.

I predict the same about interest rates.

Beyond those, here are more prognostications that are infallible, although I wish they weren't.

-- The more the price of gold goes up (if it does go up), the more we'll be bombarded by incessant television ads telling us to buy now.

-- In fact, the more the price of any type of investment goes up, the more advertisements we'll see for it. These ads prey on our tendency to "chase performance" or buy whatever has been going up lately, regardless of suitability, risk or fundamental value.

-- The higher the stock market rises (if it does go up), the more of us will participate in 401(k) and similar retirement plans. The lower the stock market falls (if it does go down), the lower the participation.

"Worker participation in a retirement plan is strongly tied to macroeconomic factors such as stock market returns," said a recent report by the Employee Benefit Research Institute, reflecting a long-term trend.

That means we are more comfortable investing when prices are high even though our dollars buy us fewer shares.

Much better, particularly if retirement is many years away, is to invest regularly regardless of market ups and downs. A study by the investment management firm T. Rowe Price, titled "Can Bear Markets Be A Silver Lining for Young Investors?," found that a severe down market early on can provide "substantial advantages" to long-term investors able to accumulate shares on the cheap while they wait for the market to turn back up.

You also can participate in 401(k) plans without investing in the stock market by choosing money market funds and other stable-value investments. So, a down market is no logical reason to stop contributing.

-- A high percentage of people who quit their jobs or are laid off, particularly those in their 20s, will unwisely cash out their 401(k) plan balances instead of rolling them over into an individual retirement account or another tax-deferred retirement plan, or leaving the money with the former employer. (They've been cashing out for years, so why expect a change?)

A 25-year-old who cashes out a $5,000 401(k) plan balance may end up with just $3,500 after taxes and penalties, analysis by benefits consultant Hewitt Associates points out. He could have had nearly $75,000 at age 65 by leaving the $5,000 in a tax-deferred plan, assuming earnings of 7 percent a year compounded.

-- Confusion will reign over complex tax rules allowing anyone with a traditional IRA to convert part or all of it to a Roth IRA beginning in 2010.

Ill-trained employees from financial institutions will make things worse by giving out incomplete if not downright incorrect information to consumers.

Converting can be a wise move for many people -- it is for my wife, Georgina, and me -- but could be a mistake for others. Without all the facts -- or with the wrong "facts" -- and spurred by a massive marketing campaign from financial firms, millions of Americans will convert regardless of whether it makes sense for them. I will devote a future column to this matter, including common misconceptions.

 

 

 

Personal Finance My Predictions for 2010 | Personal Finances and Saving

(c) 2010 Humberto Cruz