Spending and Saving

I Want My IRA

In 2001, I made my first contribution to a Roth IRA. I felt very proud of myself at the time. Look at me! I’m responsible. I deserve a gold star. Everybody was raving about the Roth as a great way to save for a home, or your kids’ college tuition, or retirement. A Roth is different from a traditional IRA because the money you contribute (up to a maximum of $2,000 a year per person if you meet certain income qualifications) isn’t tax deferred. People like the Roth because you can withdraw both your money and earnings tax free. You can take out your own money (your original contribution) any time you want, for any purpose, without paying taxes or a penalty, because it’s already been taxed. Plus, your total (contributions + earnings), can be withdrawn without any penalty regardless of your age if you use it for certain approved purposes, like college or $10,000 towards your first home.

All of this sounded fine and dandy to me, so I dutifully made my contributions, be them ever so humble. As time went on, I took the advice of my accountant to distribute Roth money to various “growth” funds, such as Calamos. I have to put the word “growth” in quotation marks, because as it turns out, Calamos was down 50% as of 12/31 (up a little bit since then). American funds (which my Roth money is also invested in) is similarly in the shitter. Everything is pretty much down, but the “growth” funds apparently are the worst.

The result for me? The total amount in my Roth IRA right now is less than I’ve put in. That’s right – I may as well have taken my money and stuffed it in a mattress. It would, quite literally, be worth more. I feel betrayed. Instead of saving for my retirement, I’ve been doing something else: losing for my retirement. Why didn’t I just go down to Vegas and plunk it down on the blackjack table? I might have increased my funds, and would have gotten free drinks, at least. All those fancy financiers who were gambling during the boom years got much more than free drinks, but partly due do their recklessness, my nest egg has become a rotten egg.

My accountant thinks that such dire views are unmerited. He calmly tells me that according to one perspective, the growth funds are not likely to go down much more since they are down so far and actually have begun to recover a wee bit in 09. According to that view, the upside potential now is better than the risk of more downside. Even so, he cautions, it may be a couple of years to get back up to my original investment. To help me understand WTF has happened to my money, he refers me to an article, “What To Make of Four Fine Growth Funds That Blew Up in 2008.”

The article begins with a tone of commiseration “Growth funds, as any of you who own one are no doubt painfully aware, incurred excruciating losses in 2008′s equity meltdown.” So far, I’m with you, Jack! The author goes on to detail Calamos’s freefall plunge, caused by its hefty position in the hardware sector and its big-time exposure to mid- and small-cap growth companies. But, the author cheerily notes, the fund “still has our confidence in management and its strategy” and concludes with a prediction that “this fund can bounce back and that it remains a good long-term option for aggressive investors.”

At the moment, I am definitely an aggressive investor: I would like to punch something.

Tags: growth funds, Roth Ira, savings