Every Wednesday, Legg Mason Wood Walker financial adviser Jonathan Murray answers e-mail on your investments. To be included next time, send your questions.
> From: Goldstein, Jon W.
Sent: Tuesday, February 12, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Hello, Jonathan,
Are there any lessons for the individual investor in Allfirst trader John Rusnak’s huge losses? When is it a good idea to cut your losses and stop throwing good money after bad?
From: Murray, Jonathan P.
Sent: Tuesday, February 12, 2002
To: Goldstein, Jon W.
Subject: RE: $
I think there are a few lessons we can learn from the Allfirst situation. First, it appears that the trader there made some bad bets on currencies,
and rather than throwing in the towel and taking the loss, he tried to “make
it up” with additional trades.
The lesson here is, if you make a poor
investment decision, accept it. Take your loss. Then, move on. Often, it’s
not the first trade that results in a sizable loss, it’s the subsequent
efforts to “get back to even.”
A second lesson is to take a long-term perspective. Be an investor, not a
speculator. There’s a huge difference. Speculators try to make money
quickly, taking advantage of small movements in prices, and placing “bets”
on their next direction. Investors, on the other hand, buy companies and
hold them for long periods of time. They don’t care about the day-to-day
movement of their stock or the market. They know that the near-term outlook
for the market is anyone’s guess, but that over the long-term, say, over 15
years or more, that the market has always gone up. Investors say, “the
declines are temporary, the gains are permanent.”
A last lesson to be learned from all of this is that when you have a
greed-induced bubble like we had in the late ’90s, it ultimately bursts,
and, like the tide going out, I think it reveals occasional instances of
fraud, deception, lax supervision and “taking advantage of the system.”
> From: Goldstein, Jon W.
Sent: Tuesday, February 12, 2002
To: ‘Murray, Jonathan P.’
Subject: $
I have a 401(k) (approx. $50,000) and my wife has one too (approx. $5,000.) We have
both been laid off and moved on to other companies, but the 401(k)s are still
with our former employers.
Instead of leaving a trail of 401(k)s behind as
Corporate America sends us from job to job, is it best to roll it over to
our new employer’s plan, leave it where it is, or is there some other
option?
Steve Schwarz
From: Murray, Jonathan P.
Sent: Tuesday, February 12, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Steve,
You have three options for your former 401(k) assets. You can leave them where
they are, roll them over to your new company’s 401(k,) or roll them over to
your own IRAs. None of these options results in a taxable event … the only
one that does is if you “cash out” your 401(k) and take a check made out
directly to you. In addition to paying income tax on that distribution, you
may also be subject to an early withdrawal penalty if you are under 59 1/2
years old. Whatever your decision, make sure that you have the assets
properly diversified, and that you consult your tax adviser.
> From: Goldstein, Jon W.
Sent: Tuesday, February 12, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Dear Mr. Murray:
My question is about IRAs. If I am enrolled in a simple IRA through my work can I still contribute to
my traditional IRA the maximum amount and take the deduction?
Jackie
From: Murray, Jonathan P.
Sent: Tuesday, February 12, 2002
To: Goldstein, Jon W.
Subject: RE: $
Dear Jackie,
If you are contributing to your simple IRA at work, you may also contribute
the maximum amount to a traditional IRA. However, as for its deductibility,
you should talk with your tax adviser, since the deductibility of your
traditional IRA is dependent upon your adjusted gross income and whether you file single or jointly.
> From: Goldstein, Jon W.
Sent: Tuesday, February 12, 2002
To: ‘Murray, Jonathan P.’
Subject: $
Thanks, Jonathan.
Talk to you next week.
