Your 401K?

foulshot

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No articles, just opinions.

How comfortable do you feel leaving your 401K where it is?
 

BelchFire

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Mine sux. I've been pouring money into it for years and it's been going negative for the last two. I really don't know much about 401K's nor IRA's, but it's something I feel like I've gotta do even if I do it poorly.
 

Val

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It depends on how it's managed and by whom. If your 401K is managed and controlled by your company, it can be very vulnerable if your company goes belly up or is acquired by another entity.
 

1fitspirit

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I decreased my withholding and I moved all my funds into short term fixed income accounts, and am losing far less than my co-workers. When the marker turns around again, I will max out the withholding and move the funds back into higher risk (hopefully higher yield) accounts.
 

bn2hunt

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I'm down 3% for this year, not bad considering how bad the markets are doing. I am spread out across several different types of investments, some high risk some low risk, and that is helping. I also figure I am buying low right now. I have 20 yrs until retirement, unless I win powerball, and I can ride out these down times. This isn't the first correction I've ridden out, just the longest. I also figure I am buying at a lower price so when they go up I will see higher returns on the dollar.
 

masonjarlid

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I am with bn2hunt. The market has an average return of 12% since it began. All of mine is in high risk stuff, I think I am down about 10%, but am not worried. I am buying low and when it goes back up I should come out very good. Putting about $600 a month into mine, so the longer it stays down the more I buy. I've got about 20 years until I retire, by then it should all be fine. Most of mine is in foreign stuff also, that seems to be where the money is right now. In for the long haul, that's the only way you can play it.
 

Lan-Lord

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I've pulled out of my 401, and have gone to IRAs. The only advantage of a 401 I could see was the company match, and my match wasnt very big. Plus the mgmt options available to me were bad. Figured I'd go ahead and pay taxes on my money now, and keep the govt's sticky hands out of it when it comes time to retire.
 

swampy tim

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No 401k here, 2 IRA's a union pention and anuity (which is a lot like a 401k) I heard advise some years ago to invest in the same things the politicians do. I am preaty sure I have; energy mutual funds and health care mutual funds. I put money in Energy 7 seven years ago and it has grown by 6 times. Health care by almost 5 times. I bought gold in 1997 when the market droped in October and I thought it was the end of the world. Gold was $380 and oz. I am looking for an instant gratification fund now. One that buys shares in companys that cater to the wims of those in our sosciety that sucumb to instant gratification ie. fast food, pre-paid cell phones, girls shoes, movie houses, as seen on TV crap etc etc. S/T
 

foulshot

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Me, I've stopped my 401K for some time now. I'm still taking the money,but spending it myself on investments based on well advised sources.
 

SDHNTR

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Some interesting responses here. Don't make things more complicated than they need to be. Trying to outsmart or out-time the market will cause more harm than good over the long term. Stick with a broadly diversified portfolio of good equity mutual funds. Make sure you have a appropriate allocation to large stocks, small and mid cap stocks, international stocks and a small percentage of alternative investments. Make sure you have a model to adhere to and rebalance annually. Add a bond/cash component based on your tolerance for risk (not based on an attempt to time the market!). Stick with this kind of program and you will have higher long term returns and far less stress in the meantime.
 

EL CAZADOR

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In the past i've done the usual Ron Popeil method that a lot of folks use . . . set it and forget it. Results were ho-hum. The little lady and I started paying attention to the market and certain trends and at times were getting double digit returns. I did really well when company stock went up, so I had that going for me. My company matches so it's a no brainer to take the free money. The little ladies company matches off and on depending on how they are doing, on than off mostly.

IRA vs 401k. You can put more into your 401k. We'll both limit out our 401ks, which is currently 3x what you can put into an IRA (15k vs 5k).
 

betelgeuse

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SDHNTR nailed it


I am doing nothing. I am diversified in index funds.

If you think you can time the market... you are wrong. Index funds beat actively managed funds 80% of the time.
 

SDHNTR

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I'm not necessarily a proponent of index funds but I certainly would not say they are a bad way to go either. For someone who lacks the time or expertise to critique and seek out the funds that do outperform, or for someone who does not want to pay someone to find those funds for them, indexing is an excellent way to go.

Remember though that 8 years ago the S&P was at 1400 and we are just now struggling to get back to that level. That is a 0% return. Compare that to a properly allocated and diversified portfolio (rebalanced annually) of good actively managed equity funds and you would have easily posted a 35-50% total return in that same time period. That is beating the index by 3.5-5.0% per year, net of fees.

Proper selection of good actively managed funds can, and does, pay off. The selection is the hard part.

If you insist on going with index funds make sure you mix it up with something other than just the S&P 500. That can be the majority of a portfolio but at a minimum, don't forget small caps on the Russel 2000 and international holdings on the MSCI EAFE.
 

Fowlshooter

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<div class='quotetop'>QUOTE (SDHNTR @ Apr 30 2008, 10:27 AM) <{POST_SNAPBACK}></div>
I'm not necessarily a proponent of index funds but I certainly would not say they are a bad way to go either. For someone who lacks the time or expertise to critique and seek out the funds that do outperform, or for someone who does not want to pay someone to find those funds for them, indexing is an excellent way to go.

Remember though that 8 years ago the S&P was at 1400 and we are just now struggling to get back to that level. That is a 0% return. Compare that to a properly allocated and diversified portfolio (rebalanced annually) of good actively managed equity funds and you would have easily posted a 35-50% total return in that same time period. That is beating the index by 3.5-5.0% per year, net of fees.

Proper selection of good actively managed funds can, and does, pay off. The selection is the hard part.

If you insist on going with index funds make sure you mix it up with something other than just the S&P 500. That can be the majority of a portfolio but at a minimum, don't forget small caps on the Russel 2000 and international holdings on the MSCI EAFE.[/b]
SD, you sound like a man with great knowledge!

I put mine in an aggressive portfolio model (Model "E") and I add to it every payday. When I started it, a smart man told me, "if the market is down, everything is on sale... Buy as much as you can when it's low - don't wait for the prices to rise".

Unfortunately, I can only add the same amount every 2 weeks but time will be on my side.
 

SDHNTR

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Right on Fowlshooter. Having time on your side is the most important factor in investing. The most dangerous emotion on Wall Street is arrogance. Just when you think you can outsmart, outtime, outwit, or outthink the market, you will get your butt served to you. You might get it right a few times, probably just enough to build a false sense of confidence, but when the cycle turns against you (and it eventually will) it's gonna really hurt.
 

el_vaquero

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SD, can you explain the benefits of rebalancing? I know I can do it annually, biannually or quarterly but I've never done it. My average return has always beaten the "portfolios" offered without rebalancing.

Thanks,
Tim
 

SDHNTR

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The importance of rebalancing is very real in highly cyclical markets. This is because certain types of asset sizes (large vs small) and/or styles (growth vs value) will outperform for a few years, then subsequently underperform for a few years. I'd go so far as to say that rebalancing is just as important as starting out with a proper allocation in the first place. If you are over allocated when a particular asset type rotates out of favor you will get whacked, and disproportionately so if you have not rebablanced.

Lets say you start with a model where you are holding 40% large caps, 20% small and mid cap, 20% international and 20% core bonds. All fine and good to begin with. Now lets say that after a few years small caps have really done well and outperformed while large caps have underperformed. You now have an allocation of 30% small caps and 30% large caps. Due to the volatile nature of small cap stocks, once that cycle turns around and small caps underperform you now stand to loose a much greater amount since you were overallocated. That is called getting whipsawed.

Instead, when times like that happen you should rebalance back to your original model. That will keep you from getting whipsawed. It will force you to take profits at the highs, and reinvest back in at the lows. In this case, you would sell the excess 10% in small caps and invest it back into the large caps where you were lean by 10%. This brings you back to 40% large and 20% small. The effect of this is the old buying low and selling high. It is a systematic approach the removes emotion and prevents you from attempting to time the market. You simply develop the model based on your tolerance for risk and rebalance it back on an annual basis. You don't need to get caught up in the news of the day or what Warren Buffet is doing or what stocks your smart neighbor is buying or any of that noise. The model does the intelligent investing for you. It's a strategy that takes some discipline but will reduce the risk of a portfolio over time while also enhancing returns in most cases too.

Does that make sense? I'd be happy to speak with anyone further but we'll need to take it offline.
 

betelgeuse

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<div class='quotetop'>QUOTE (SDHNTR @ Apr 30 2008, 10:27 AM) <{POST_SNAPBACK}></div>
Proper selection of good actively managed funds can, and does, pay off. The selection is the hard part.

If you insist on going with index funds make sure you mix it up with something other than just the S&P 500. That can be the majority of a portfolio but at a minimum, don't forget small caps on the Russel 2000 and international holdings on the MSCI EAFE.[/b]

SD
I agree with most of what you said. I was just tired of paying fees to people to NOT beat the market 80% of the time. Most actively managed mutual funds are a rip off. Especially the ones you pay comission to buy. A bunch of them are "closet" indexers, but charge active management fees. Finding the ones that outperform over time is a crapshoot for the average person, at best.

I am diversified through several Index funds. Schwab 1000, Total Bond, International ect.

A good book for beginning investors is the Bogleheads Guide to Investing.
www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0471730335

Explains: indexing, rebalancing, asset allocation, etc.

The best thing to do is educate yourself. It's your money.

Cheers

P.S. Your explanation of re-balancing was great.
 

jhuhtala

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I would thinking of shutting down my 401k since I'm down about 15 percent from where I was a year ago, but my company matches 50 percent which more than makes up for the difference even during a downturn.
 

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