Retirement investing: Don't abandon stocks

(MONEY Magazine) -- Question: My wife and are in our mid 30s and have begun aggressively contributing to our 401(k) and a Roth IRA. I know we should be looking long term, but it's discouraging that our account balances are lower than they were earlier in the year. If we had just stuffed the money under our mattress, we wouldn't be sitting on a loss. Should we keep investing in this market or go with the mattress theory? -- Daemon Fields, Eustis, Florida
Answer: I don't blame you for feeling discouraged. If you're serious about building a nest egg, it's hard not to feel disheartened these days.

After all, despite a rally since the end of August, stock prices are still down from their levels earlier this year, not to mention more than 25% below where they were nearly 10 and a half years ago.
So I can see why you might think that simply sticking cash under the mattress -- or, more realistically, investing it in something secure like Treasury bills or FDIC-insured CDs -- might be better than tying your retirement prospects to the stock market.
But I think you would be making a mistake to give in to the understandable urge to abandon stocks.
For one thing, when you're investing for retirement, you really do have to focus on the long term, and I mean really long term when you're only in your 30s.
To get an idea of why that's the case, let's take a look at an episode in U.S. stock-market history that's even worse than anything we've seen in our lifetime -- the Crash of 1929.
If you had invested, say, $1,000 in stocks when the market was at its peak in late August-early September of '29, you would have been sitting on a loss of about 83% by the time the market bottomed out roughly half way through 1932. In other words, your thousand bucks would have been worth only about $170.
What's more, it would have taken a long time for you to recover from that setback. Assuming you held on and reinvested dividends, you wouldn't have gotten back to even until the beginning of 1945.

But if you had held on until August of 1959 -- in other words, for 30 years, or about the same length of time you have from now until you and your wife will retire -- you would have earned an annualized total return of about 7.8% and your original grand would be worth just over $9,500.
Granted, had you invested in secure T-bills over that period, you wouldn't have lost any money in the crash. On the other hand, by the end of that 30 years, you would have earned only an annualized 1% or so, which means your original $1,000 would have been worth only a little over $1,300.
But this example shows only what would have happened to a single sum invested at one moment in time, that moment being the top of the market. When you're saving for retirement through 401(k)s, IRAs and the like, however, you're not investing all your money at once. You're periodically investing small sums. Which means you're effectively earning different rates of return on each 401(k) and IRA contribution.
Thus, while you would have earned 7.8% annualized on $1,000 invested at the top of the market in 1929, a $1,000 investment in stocks at the bottom of the market in 1932 would have earned an annualized 16% by August, 1959.
In short, over the course of a long career, you're going to earn a variety of returns on the money you invest, some lousy, some middling, some spectacular. You can never be sure what returns stocks will deliver. But as Ibbotson Associates founder Roger Ibbotson told me in a recent interview, the more fearful people are about investing in stocks, the higher the returns stocks are likely to generate going forward.

0:00 /3:04Enjoy life and save for retirement

The point, though, is that I don't think it pays to get too caught up over the return at one particular point it time, whether it's fabulous or horrendous. What counts is how large a nest egg you'll eventually have to support you in retirement.
I want to be clear that I'm not trying to play down the risks of investing in stocks. They are definitely risky. Stock prices can fall precipitously and they can stay down for a long time. And even though history shows they have rewarded investors handsomely over long periods, those returns are anything but certain.
That's why, even if you're OK with the case for investing in stocks over the long run, your retirement portfolio shouldn't be invested entirely in stocks. You also want to be sure to scale back your stock stake as you approach retirement -- and continue doing so after you retire -- to avoid seeing your savings get decimated late in late in life when you don't have as much time to recoup losses. That's the theory behind target-date retirement funds.
Of course, you could chose to build a nest egg without stocks by investing solely in more stable alternatives like bonds and cash equivalents.
So as I see it, you have a choice. You can do the investing equivalent of keeping your money under your mattress and avoid stocks. Or you can take what I consider a prudent level of risk and include stocks in your long-term retirement investing strategy.
I'll grant that you may sleep better now with the Sealy approach. But unless you're willing to really rev up your savings effort, I doubt you'll sleep as well during retirement. 

Fastest Growing Jobs in America

How will the job market evolve in the next decade? Fortune takes a look at some of the fastest growing professions in the U.S.
Nurses
The number of registered nurses is expected to swell to 3.2 million by 2018, accounting for approximately 581,500 new jobs, according to the Bureau of Labor Statistics. That's up from 2.6 million today, and it represents the largest overall growth projection out of all occupations in the U.S. economy, for good reason.
Americans aged 65 and older will make up 19% of the population in 2030, up from 12.4% in 2000. As the population ages and the growth of the working-age population slows down, there will be an increased demand for health care services in general, and home health care services in particular. In the past year, the home health care services industry has experienced sales growth of 11.2%, making it the fastest growing industry in the U.S., according to Sageworks, a financial analysis company.
Along with registered nurses, Sageworks projects that home care aids, physician assistants, pharmacists, and other medical professions will be in high demand for the foreseeable future.
Network Systems and Data Analysts
This occupation's full title is "network systems and data communication analysts." And while it's a mouthful, it is worth remembering as it's the second-fastest growing occupation in the U.S., according to the Bureau of Labor Statistics. In simpler terms, these analysts are the folks who design and build the systems that we use to connect to the web, from work or home.
In many ways, these are the folks that make communication possible in our Internet-centric world. So perhaps it's not so surprising that they are in high demand, and will be for the foreseeable future. BLS's latest employment outlook report estimates that the profession will grow by 53.4% to almost 448,000 workers between 2008 and 2018.
Software Engineers
What would all that planning and design by network and data analysts be worth without software? Not a whole lot, which explains why the BLS expects the cadre of software engineers and application developers to swell to 689,900 by 2018 (up from 514,800 in 2008). Whether they are building business software, constructing an operating system, developing games, or designing mobile apps, software engineers have a wide array of career avenues to consider.
And it surely does not hurt that the worldwide smartphone market grew by 50% between the second quarter of 2009 and 2010, according to the market research firm IDC. The impressive growth of the smart mobile industry over the past few years will only add fuel to the fire of the impressive job prospects for application developers, as smartphone users have come to expect increasingly advanced software applications to justify the increased expense of their phones.
Biomedical Engineers
Biomedical engineering is expected to be the fastest growing occupation, with a whopping growth project of 72% between 2008 and 2018, according to the Bureau of Labor Statistics. It's not much of a surprise, given that this field lies at the nexus of technology and health care, two ballooning industries within the U.S. economy.
The immense growth of biomedical engineering will be driven by the demand for new treatments for diseases and the increasingly higher expectations of aging patients to maintain an active lifestyle. Indeed, the pharmaceutical and medicine manufacturing industry experienced 11.1% sales growth in the past year, according to Sageworks.
From developing artificial organs, medical devices like pace makers, or refining imaging technology that allows doctors to examine patients in more precise ways than ever before, biomedical engineers will have plenty to work on in the coming decade.
Accountants and Auditors
While number crunching and bean counting has certainly not fallen out of style in recent memory, the economic fallout of the past few years has placed renewed focus on financial regulation. And with the passage of the federal financial reform bill in June, companies will need an even larger cohort of auditors and accountants to parse through new regulations to make sure they are in compliance.
The accounting profession is poised to experience 22% growth between 2008 and 2018, with an anticipated 279,400 new jobs in the field by 2018, according to the BLS.

Veterinarians
Our love for the dogs, cats, and fish in our lives truly knows no bounds. Pet care was one of the only sectors of the retail industry that grew during the recession.
According to the 2009-2010 National Pet Owners Survey, 62% of U.S. households owned at least one pet in 2008, accounting for approximately 71 million households. And the American Pet Products Association estimates that pet owners will spend almost $48 billion on their pets. Just under $24 billion of that will be spent on medicine and veterinary care, as more Americans than ever before open their wallets to spring for treatments for an ailing animal family member.
It's no surprise, then, that veterinarians are listed as one of the fastest growing professions in the U.S. -- the number of vets is expected to expand by 36% between 2008 and 2018.

Ten Ways to Save Money by Going Green

 It's been the hottest summer on record, from New York to Tokyo. Russia is scorched earth. This year's global temperatures may surpass those of 1998: If so, that would mean the two hottest years on record have been in the last 13.
The National Academy of Sciences recently published a survey of nearly 1,400 climate researchers worldwide. About 97% believe that we are causing global warming. (Meanwhile, the deniers cling to their peculiar upside-down logic: "You can't prove for certain that my house is going to catch fire, so fire codes are a total waste of time, and there is no point buying an extinguisher.")
If you're worried about the environment, here are 10 "green" moves you can make that also have a payback—they'll help the earth and your wallet.
1. Stop the energy leaks from your home. Just over a fifth of U.S. energy consumption happens at people's homes, says the Department of Energy. That costs the average homeowner $2,400 a year. Half of that goes to heating and cooling, much of which is pure waste. Insulate ceilings and walls. Seal cracks and gaps. "Often people have so many small leaks around the home that it's the equivalent of having a three-foot by three-foot window wide open," says Kateri Callahan, president of the Washington-based nonprofit Alliance to Save Energy.
2. Change your light bulbs. The typical household has 46, says the Department of Energy. But only five of them are energy-efficient compact fluorescents. These can cut light bills by 75%. Don't like CFs? Matt Patsky, veteran green investor and the CEO of Trillium Asset Management, says new LEDs are much better still. They cut energy use by 95% and emit a much softer light. They're more expensive, but prices are coming down pretty quickly.
3. Stop heating an empty house. Or a house when everyone is asleep. Get programmable thermostats. They can cost as little as $50. "They typically pay for themselves in three months," says ASE's Ms. Callahan. They can cut your heating and cooling bills by 10%, she says, without any effect on your comfort at all. Turning down the thermostat in winter (and up in summer) a little helps too: Experts say each degree can trim 2%-3% from your heating bill.
4. Rethink your appliances. Replace any old ones with new, energy-efficient models. The older your current fridge or washing machine, the faster the payback. The more efficient models today have an EnergyStar seal from the Department of Energy. They typically use about 30% less power than a model without the seal, experts say (more details at wwww.energystar.gov). As for your TV: The bigger the screen, the more power it's using. How big do you need? Do you really want to see, say, a life-size Snooki when you're watching "Jersey Shore"?
5. Stop leaving your computers and home entertainment systems on standby overnight. The screen's black but they're still sucking power, needlessly. Power strips make it easier to switch everything off at once, and new smart strips make it easier, for example, to power down the TV while leaving the TiVo connected.
6. Make the most of your green taxpayer incentives. For example, Uncle Sam is offering to pay up to $1,500 of your costs on things like insulation or better-insulated windows, although the program expires at the end of this year. Your state government may provide additional incentives. The best overall guide to these deals is available at DSIRE, the Database of State Incentives for Renewables & Efficiency.
7. Tackle your hot water heater. It's one of your biggest energy users. Put insulation around the heater and the pipes. And dial down the thermostat. They are often set at 140 degrees. That's way too high: The Energy Department suggests turning it down to 115 to 120 degrees instead.
8. Drive a more-efficient car. How wasteful are we on the roads? I once watched a young woman drive through the cobbled streets of Boston's historic North End in a monstrous, gas-guzzling Hummer. She looked sillier than Michael Dukakis in that tank. What are we thinking? Super-efficient hybrids can be pricey, but Jessica Caldwell, director of pricing and analysis at car experts Edmunds, says there are a lot of deals around at the moment that can bring the price down. And you don't have to go hybrid: Ms. Caldwell notes the small Nissan Versa gets 29 miles to the gallon and only costs $16,000.
9. Get a home energy audit. The price of these has come down. For a few hundred dollars, experts using high-tech gadgetry, infrared scanners and computer models will analyze your home, work out in detail all the ways it's wasting energy and tell you what you can do to stop it. As the average home uses about $2,400 worth of energy per year, the payback is often impressive. Matt Golden, chief executive of San Francisco-based specialists Recurve, says he often finds he can cut bills by 20% to 40% just by eliminating waste. An audit can also help you rethink your heating and water systems, and identify possible sources of renewable energy, from solar paneling to a geothermal heat pump, that can help the environment and may save you money over time. Check for firms accredited by the trade body, the Building Performance Institute.
10. Buy an e-book reader. If you read a lot, they are very green. Traditional books, newspapers and magazines aren't: They do a lot of environmental damage, from cutting down trees to manufacturing and distribution. Emma Ritch, senior research analyst at the CleanTech Group, an environmental consulting firm, has done the numbers. Bottom line: A device like the Kindle has about the same impact on the environment as 23 books, or 280 newspapers, or 177 magazines, or some mixture thereof. So if you're going to use it to read more than that, you're helping the environment. By my reckoning, someone who buys a newspaper a day, a magazine a week and three books a month will break even by the fifth month.

Debt, Savings, Retirement: Where Should Your Money Go?

Should you pay down your debt, put money aside for emergencies or save for your retirement? The answer is that there is no answer; there is no magical one-size-fits-all formula because each situation is different and you need to take your career, lifestyle and age into account.
If you are in a secure job in a steady industry, you may not have to worry about your income, but if you are self-employed, you may(rightfully) be more nervous about setting aside short-term savings. If you live in an expensive city, you will pay more for life than someone earning the same salary in a cheaper city, which also means you will have less money to put toward your debt. If you are young and single, you can take more risks with your money because time is on your side and you can make up for mistakes in the future. However, if you are nearing retirement or you have a growing family to feed and a mortgage to pay, what you decide to do with your money has a larger ripple effect with a shorter time frame to fix it in.
So what to do?
1. Take Stock of What You Have
DebtWhile taking the above into consideration, you need to have some hard numbers to use as your money goals. Look at your fixed and variable expenses, and see what's leftover to put toward savings and debt. Add up all of your debts and list the minimum payment for all your debts.
Now add an additional 20% on top of your debt minimums, which will go toward your principal, and consider that to be your minimum debt repayment to start.
For example, say your minimum payment is $500 a month. Twenty percent on $500 is $100, so you should now pay $600 a month.
The amount credit card companies calculate as your minimum goes mainly to paying the interest on your debt, and barely covers the principal. This means that in many cases, it will take you 10 to 20 years on average to clear your debt, not to mention the final amount you will end up paying in interest costs.

RetirementCalculate how much you think you might need in retirement and for how many years you'll need it for. The general rule of thumb says you will need approximately 75% of your current income for each year you are retired.
EmergenciesCalculate six months' worth of bare bones living expenses as your emergency fund, which includes rent, groceries, utilities, transportation and 10% on your income for miscellaneous expenses. If you are self-employed, you should save up to a year of expenses to offset risk.
2. Come Up With a PlanTo start, you should aim to clear your debt in five years, save $100 for retirement and $100 in your emergency fund per month, adjusting as you see fit.
If you are young, time is on your side, and focusing more on debt with minimal emergency savings is a good strategy because you should be able to make up for your retirement savings later.
If you are nearing retirement (within 10 to 20 years), you should focus on clearing your debt until it's gone while saving at least three months' worth of emergency expenses. Next, start putting those savings toward retirement. It's important to start with your emergency fund rather than the other way around because it is too risky to have your savings locked in for the long term without any cushion for the short term.
After you've accomplished one of your goals (debt repayment or savings), continue to set aside money for your other goals.
3. Continually Reassess Your Needs and WantsIt may seem impossible, but you can always cut back somewhere, it's just a question of what you are willing to try.
Think of it this way: If you make an effort to trim the fat, it means you will get out of debt faster, save money quicker and be financially secure sooner than you had originally projected. For quick results to your bottom line, cut back your cable TV and cell phone plans and shop around for lower insurance quotes.
Final TipsTo accelerate your plan for financial freedom, snowball your windfalls: if you get a bonus or a tax refund, put it all toward your debt or into savings. Don't spend your emergency savings unless it's a real and unplanned emergency. Finally, keep saving even after your debt is done: putting at least 10% of your net income into savings for the rest of your life will help set you up to be financially secure.
Stay vigilant and don't lapse back into your old spending behaviors and don't be discouraged if things don't go as planned - it isn't a race, it's a journey.