This week I had 2 tests and 1 term paper so of course I didn’t get to do any posting but I did get an interesting call from my mom. She wanted me to help a friend of hers out with a financial problem.  Her 401k dropped about 60% in this financial crisis. I was very saddened to hear this news but I figured she had some time keep contributing and growing her assets. However, I was further saddened to hear that her friend was in her 60’s already and the account was only worth a little over $35,000. Now I was thinking there is not much to work with here but it in fact got worse. I got a statement emailed to me and found out there was a $20,000 loan on the 401k. That left actual equity in the 401k to be about $15,000. Wow now I have my work cut out of for me! I still have to call my mom’s friend and actually get way more information before I can get down to business but I really wanted to help her as best I can and come up with a game plan.

Questions I need to get answered:

1.    How much social security is she expecting or currently receiving?
2.    Does she plan to retire from her current job?
3.     How much approximately does she and her husband make per month or per year?
4.     How much do they spend per month or per year?
5.     Finally how much do they have outside of the 401k?
6.    Does she have debt and if so how much and what type of debt is it?

I don’t know how many of these questions I will get answered, they are extremely personal. Trusting someone over the phone in a different state is incredibly difficult to do and probably the number one issue in the financial advising industry. Still, the more questions answered, the better chance I will have to help.

The investment are spread out in about 10 or so funds some in 45% lifestyle funds, 30% Large Cap, 15% Small/Mid Cap and 10% International. Personally I am not a big fan of the lifestyle funds but in her case it may be useful. I haven’t decided how I want to do the allocation yet but I want to get some more information and what her strategy was in setting her 401k up this way.

The sad truth is there probably was no strategy in setting up the 401k. Since the great stock market from 1980 to 2000, people are told to put money into the 401k and to diversify. The idea of the market going down or that broad diversification may not always be the best idea might never come into people’s mind. I can’t help but be incredibly sad and upset with our education system. We are taught about World War I in history class but how to invest or save is pretty much ignored. Hopefully, I can help but I am not optimistic as of right now. I will keep everyone up to date as I get more information and explain the process of coming up with a plan in my future posts.