What Will Happen To Money in Investment Income Accounts?

If you have money in an investment account, 401k or similar retirement account, you’re probably panicking right now.

After all, it looks like the world’s central banks are running out of ammo! After dramatic interest rate cuts worldwide, global equity markets continued to crash Wednesday. The Japanese Nikkei Index fell 9.38% in a single day! The Hong Kong index dropped 8.17% overnight. The German DAX fell 6.25%. The British FTSE dropped 5.5%.

The world is panicking as it watches the entire global financial system grind to a dead stop. Stocks are in free fall all over the world! The Dow closed down 508 points on Tuesday but that barely tells the story. The S&P 500 has lost 21.4% in the past 30 days alone… 31% so far in 2008… and 36% since October 2007.

Worst of all, there is no sign the bloodletting is going to stop. Banks worldwide are collapsing. The global economy is grinding to a halt. Unemployment is rising.

Social Security will be there after the coming stock market wipe-out. So will government pensions. The Fed will see to that. Private pensions are a different matter altogether. You cannot count on them. During the 1970s and 1980s, pensions were grossly underfunded. Many major corporations had to put more cash into their pension funds, to bring them up to minimum standards. During the bubble stock market, companies were able to take out that cash, and put stock in its place.

People think their pension funds are solid. Nothing could be further from the truth. If your retirement plan is tied to stock or money market funds— and they all are — expect to take a big hit.

Consider cashing in your retirement or pension plan even if you must pay the tax consequences. Someone once said that money you can’t control is not your money. Get out of any IRA, Keogh, 10K, retirement plan or pension fund. Transfer the assets first into bank savings accounts and then quietly take it out and stuff some in your mattress. Remember, during the last stock market depression, people who had cash in their mattress were kings.

On balance, the dollar is going to continue falling for the next 20 years. America’s balance of trade disaster and the coming global stock market wipeout guarantee this. You absolutely should diversify into foreign currencies.

We are now entering a new era of massive deflation. Real estate, of course, is plunging lower and lower almost everywhere on the planet. Stock prices are in free fall. The prices of most commodities are dropping fast. The Dow Jones-AIG Commodities Index Total Return ETF (DJP) is down 37% since mid-July. Oil has dropped from $140 a barrel to under $90 today.

We’re in for a wild ride the next few months.