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Author Topic: 401k's and market downturns  (Read 5289 times)

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Offline DingoBoi

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401k's and market downturns
« on: June 09, 2006, 08:47:11 PM »
The last two weeks have been hellish on investments.

I do 401k recordkeeping for hewitt associates and, while i am not licensed as a investment advisor, I would strongly suggest everyone move their money to more secure investments.   

Rising interest rates, higher fuel prices and inflation are all contributing to the downturn in the market.  Protect your investment... but keep tuned in to take advantage of the eventual upswing.

Right now, i'd predict the market hasn't bottomed out yet.  I expect it to dip at least 10% more before resurging.

Keep track of your investments and know the funds you are in and the fund options you have available.  all 401k's i know of have some very secure, conservative investment options, versus the riskier stock market or international markets/emerging markets.


Offline DingoBoi

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Re: 401k's and market downturns
« Reply #1 on: June 09, 2006, 09:07:49 PM »
the market does not seem to be on a rebound yet... at the end of this month, the feds will announce the new interest rates which are expect to up .25 percent.   I think the market it in panic till then and probably for a bit after that.  Now is the time to play it cool i think on investments and secure your options.

Bailey (who's own 401k crashed from a 20% rate of return to 0.4% over the last two weeks)  Hey, like i said i'm not an investment advisor  myself

Offline Dennis

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Re: 401k's and market downturns
« Reply #2 on: June 09, 2006, 09:17:17 PM »
Interesting.  I usually pay attention to my 401k at least once every six months.  I contribute to funds that are marked as "very agressive".  Over the history of my current 401k (3.5 years) I managed a 10% rate of return.  Over the last 6 months a 2.47% rate of return.  However, over the past month -1.62% rate of return.  I don't think it's something to worry terribly about at the moment, but definitely worth keeping an eye on. 

Offline thescot

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Re: 401k's and market downturns
« Reply #3 on: June 09, 2006, 09:19:26 PM »
I thought this was a forum for people living with HIV to share their experiences?

Oh well ..... my car needs washed because it's dirty.

Thescot

Offline edfu

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Re: 401k's and market downturns
« Reply #4 on: June 09, 2006, 09:58:49 PM »
Well, thescot, some of us with HIV don't work, and some of those, like myself, use our 401K's for living expenses (rent, food, etc.), so the market is vital to our well-being.  I for one am sick with worry about what will happen. 
"No one will ever be free so long as there are pestilences."--Albert Camus, "The Plague"

"Mankind can never be free until the last brick in the last church falls on the head of the last priest."--Voltaire

Offline DingoBoi

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Re: 401k's and market downturns
« Reply #5 on: June 09, 2006, 10:11:13 PM »
I thought this was a forum for people living with HIV to share their experiences?

Oh well ..... my car needs washed because it's dirty.

Thescot

it indeed is... but having reserve savings like a 401k is an integral part to many of us, becuase social security or disability doesn't cover it all by far.

This is very topical to people living with hiv as a reminder for them to check their accounts. 

I'm sorry you don't feel it worthy of this forum nor care that others may be experiencing great loses at the moment.

Offline edfu

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Re: 401k's and market downturns
« Reply #6 on: June 09, 2006, 10:15:13 PM »
Thank you, Dingo.  As my reply makes clear, you are entirely correct. 
"No one will ever be free so long as there are pestilences."--Albert Camus, "The Plague"

"Mankind can never be free until the last brick in the last church falls on the head of the last priest."--Voltaire

Offline DingoBoi

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Re: 401k's and market downturns
« Reply #7 on: June 09, 2006, 10:43:39 PM »
Interesting.  I usually pay attention to my 401k at least once every six months.  I contribute to funds that are marked as "very agressive".  Over the history of my current 401k (3.5 years) I managed a 10% rate of return.  Over the last 6 months a 2.47% rate of return.  However, over the past month -1.62% rate of return.  I don't think it's something to worry terribly about at the moment, but definitely worth keeping an eye on. 

indeed... this is of major financial impact to some people here... less to others.

all I really suggest is keep an eye on it..... maybe reconsider your investment strategy.... based upon what I know, i moved all my funds to the most conservative investment fund available right now...(wish i had done it sooner).... i'll transfer it back as i start to see upswing trends.... but i really fear it will go lower soon..


Offline thescot

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Re: 401k's and market downturns
« Reply #8 on: June 10, 2006, 01:14:00 AM »
Sorry if i offended anyone`...... i am not familiar with 401k's and to me it looked like your mail was more of a off topic subject. Now that i know more i'll keep my trap shut.
By the way i can't see anywhere in my reply where i mention not "caring about people who may be experiencing great losses".

Thescot

Offline DingoBoi

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Re: 401k's and market downturns
« Reply #9 on: June 10, 2006, 01:33:35 AM »
it's okay.

by the nature of your response, I presumed, maybe incorrectly, that you aren't familiar with 401k's, and many, many people have taken substantial losses in the last weeks.  Your inference that you 'don't care' was derived from your car wash comment, as that might be the best thing you have to do.  Again, actually, I wasn't saying anythign that specific, just that people are losing money and you might not care.  But if you don't understand 401k's, you wouldn't understand that.  This is not an insult.  Even most people who have them don't really  understand them.   

For some, this may be a huge concern.. for others, like me still in the workforce with many years to come likely, it may be a minor, but significant, blip.

One of my coworkers lost $5000 in the last 2 weeks on her 401k.

This type of loss may be devastating to long term financial planning for hiv poz people, especially those who depend on it for income if they aren't working.

it's okay if you don't understand it... and i 'get' your comments about thinking it off topic.

It's not something very apparant as concerning us directly at all is it?  But it can also have a major impact for some..... even for general people, it may be best to transfer assets to more conserative funds till this market settles down.





« Last Edit: June 10, 2006, 01:41:04 AM by DingoBoi »

Offline Cliff

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Re: 401k's and market downturns
« Reply #10 on: June 10, 2006, 06:07:25 AM »
Good topic Dingo, (even if I can't really tell if it's a serious one or just to get you closer to Hero....perhaps both).

Interesting.  I usually pay attention to my 401k at least once every six months.  I contribute to funds that are marked as "very agressive".  Over the history of my current 401k (3.5 years) I managed a 10% rate of return.  Over the last 6 months a 2.47% rate of return.  However, over the past month -1.62% rate of return.  I don't think it's something to worry terribly about at the moment, but definitely worth keeping an eye on. 
Dennis,

You really should reevaluate your 401K.  The point  of being in an aggressive fund(s) is to take advantage of much higher gains than one could get in more conservative funds.  So you should care how your progress has done (long-term) as compared to the more conservative (and usually lower return) market.  In 3 years (since June 1, 2003), the maket (Dow Jones) is up 23% over that period (even considering the most recent downturn).  If you have only managed a 10% rate of return, then you done less than half that, when in reality you should have invested aggressively to get much more than that.  To me that would indicate that it's time to put your money in a different fund....it doesn't have to be less aggressive, just a better performing fund(s).  If you had invested in pure international equities (and a decent fund), your plan should have been up around 40-60% over a 3 year period, (possibly more depending on the exact international equity plan you have the option to choose).

Offline Dennis

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Re: 401k's and market downturns
« Reply #11 on: June 10, 2006, 10:06:24 AM »
Thanks for the advise Cliff.  Truth is, I don't know a whole lot about investing.  ML offers portfolio modeling.  So basically all I did was have mony money invested in "very agressive" model.  I did this because I was told this would be best for long term investing.  From what I can see, the more agressive fund are outperforming the ones marked for more moderate investors.  Plus my choices are pretty limited.  In fact, I'm limited to about 7 equity/stock, 2 bonds, and 1 cash equivalent choices to invest in. 

Offline Cliff

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Re: 401k's and market downturns
« Reply #12 on: June 10, 2006, 11:46:22 AM »
It is true that the younger you are the more aggressive you should be.  That way you can accumulate wealth much faster and if the marker turns downward (aggressive almost always means more risk) then you have more time to make up the losses.  Whereas the closer you are to retirement (or using the funds) the more conservative you need to be, because you're thinking more about asset preservation not growth.

I generally check my 401K status every 3-4 weeks.  That doesn't mean that I change my selections that often (I usually end up changing once or twice a year), but I like to see how I'm doing against the other funds available for choosing and the market in general.  When I first started working I just threw the money into anything thing and never really paid attention, as a consequence my first 3 years of being in my 401K fund, I only managed a 2-3% gain each year.  But after I started being more proactive and being more involved in my investment decisions, my gains have increased substantially...now on average, I've been earning about 30-40% a year.

This is what I do:

1.  I check to see how I've done YTD (so in this case from Jan through June 9, 2006).  I then check to see how I've done MTD (since my last check).

2.  I compare my YTD & MTD returns against the overall stock market (Dow Jones, Nasdaq).

3.  I compare my YTD & MTD returns against the same returns applicable to the other funds I have available to me.

4.  If I'm doing substantially worse than the broader market or the other funds, I consider switching my money to another fund.

5.  I pay attention to how the stock market is doing and watch CNBC and CNN Business news.  You can generally get a feel for how the market is behaving.

About a month ago, there was talk of an pending correction (especially with international equities).  I was 100% invested in international equities (aggressive funds).  I then moved all of my money to various Russell 2000 funds (indexes that invest in smaller domestic companies).  Those stocks held up better when the market turned down (international stocks got hammered, US dropped too but not as much as international equities).  A few weeks ago, predicting that the drop will then widen to include smaller US domestic companies, I moved my money into a REIT fund, this wasn't based on news but more so based on me tracking the performance of that fund against my performance and the performance of the wider market.  It has held up quite well, so it's probably a safe bet until I decide to jump back into international equities.  Soon this will be a great time to buy stocks (especially those that have dropped considerably), since they will eventually move upwards once the increases in interests rates slow down and the economy cools slightly (i.e., inflation gets under control).

Offline rocket

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Re: 401k's and market downturns
« Reply #13 on: June 10, 2006, 04:09:55 PM »
Dingos advice is good even if it is late,usually when there is panick is the time to buy,but i have a feeling that the market will keep going lower in the nearterm.Im short some individual stocks,meaning I hope they go lower and will buy them back at a lower price.The market is seasonal and in the summer tech stocks almost always do poorly.The sayin"sell in may and stay away" is very true.But make sure your back in the market around October when the market usually rallys into the new year.

Offline DingoBoi

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Re: 401k's and market downturns
« Reply #14 on: June 10, 2006, 04:30:17 PM »
yes, tardy... my apologies... but better late than never :)

cliff does sum it up very well.


Offline Buckmark

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Re: 401k's and market downturns
« Reply #15 on: June 10, 2006, 04:57:20 PM »
I personally take a different approach.   Disclaimer:  I am not a
financial adviser, so what follows is only my opinion.

The practice of "timing the market" can be notoriously difficult to do.
If it were easy, then everyone would do it, and no one would lose
money.  Just buy when the market is low, and sell when the market
is high.  But you need to pay very close attention to what is going on in
the markets, and know when to jump out *and* jump back in.

Even then, over the long term, experienced money managers who "time the market" generally do not achieve returns that beat the overall market as a whole.  Again, that's over the long-term, which is timeframe most of
us are investing for.  So what alternatives are there for average, ordinary investors?

Personally, I prefer a systematic approach of regular, automatic
investments on a monthly basis (whether it be a 401K, or even
non-retirement investments).  Then you should keep an eye on
your investments to make sure they are (1) diversified among different
asset classes, and (2) allocated among asset classes with a level of
risk/return that meets your investment objectives, and is within
your level of risk tolerance.

Examine your invesments on regular basis (monthly, quarterly, semi-annually) and make adjustments/re-balance whenever you do not feel your investments are properly diversified, or do not meet your investment
objective or risk tolerance.

Also, don't forget to look at the cost of your investments, particularly
if you invest in mutual funds.  Some mutual funds have expenses which
are quite high, and can eat into a fund's total returns.  Index funds
can be a low-cost vehicle for buying into a variety of asset classes.

Your mileage may vary.  But in my opinion, steady, systematic investing
with occasional rebalancing has worked very well for me.  I get returns
equal to those of experienced money managers, without having to pay
an experienced money manager, and without having to pay attention
to the markets on a daily or even weekly basis.

Cheers,

Henry

"Life in Lubbock, Texas, taught me two things:
     One is that God loves you and you're going to burn in hell.
     The other is that sex is the most awful, filthy thing on earth and you should save it for someone you love."
- Butch Hancock, Musician, The Flatlanders

Offline chris_in_georgia

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Re: 401k's and market downturns
« Reply #16 on: June 11, 2006, 10:23:49 AM »
First Dingo..it is a good topic here, as there are those here who need thier 401 or 403 on a much near-term basis.

Trained in financial counseling but not a CFC. Take my opinions as a personal opinion only..(disclaimer so you won't try to sue me later...even though since you are not paying me it's a mute point anyway).

Everyone should understand that how soon they expect to need the 401/403 $$ should guide thier level of exposure to the markets. Those who don't anticipate needing the $$ within the next 5-10 years or more should still be investing in more high risk choices (which have more exposure to the markets) - the short-term down turn now will translate to higher gains later. If you anticipate needing the money within 5 years or less, then you need to be in more fixed income based funds (to secure the $$ that you already have).

As far as trying to time the market - you may as well go to Vegas and play your money there. Short term speculation is more like gambling than investing. I'm not saying that it is entirely bad..just see it for what it is.

Good luck to all.

Chris
"I wear my life right on my sleeve. Where I've been has left it's mark on me."http://www.jodeemessina.com/music/index.html

Poz since '88 - in it for the long haul.

Offline joemutt

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Re: 401k's and market downturns
« Reply #17 on: June 11, 2006, 11:31:06 AM »
Is this something unique to the US?

Offline Cliff

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Re: 401k's and market downturns
« Reply #18 on: June 11, 2006, 12:42:28 PM »
Personally I think to invest in the stock markert, whether within the confines of a retirement plan, (401K as is dicussed here), or otherwise, is in effect trying to time the market.  Timing the market is a catch phrase that people say to scare investors, but in truth if you are investing you ARE trying to predict where the market is heading and making your investment decisions accoridngly.  That's the point of investing.  Otherwise you would just put your money in a CD or a savings account and not worry about market fundamentals at all.  Like it or not, if you're in the market, you're playing the market.

I also believe that diversication is one of those catch phrases that tends to get batted around far too much.  Diversication is not that beneficial the farther away you are from retirement.  Diversication sounds good on paper...ie., as one stock goes down, it's offset by another stock that goes up...thereby reducing your investment risk.  But to diversify also means that you are depriving yourself of potential asset gains because you have spread your risk too thin.  Diversication (and other less aggressive investing techniques) have their purpose, but blanket statements that everyone should diversify is not necessairly beneficial to all investors.  Some investors, like myself, should be less concerned with diversication and more concerned with wealth appreciation (gains), and to do that requires less diversication, if at all, than say a 50 year-old worker needing to protect the wealth she or he has already generated in preparation for retirement in 5-10 years.

Offline DingoBoi

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Re: 401k's and market downturns
« Reply #19 on: June 11, 2006, 04:00:33 PM »
Is this something unique to the US?

Not entirely.   401k's are specific to the US as a retirment savings account under the Internal Revenue Service tax code.  It permits investments on a tax defferred basis from your payroll earnings and reduces your short term tax liability.

Other countries may have quite similar types of plans, but in the USA, they are called 401k's which is the actual tax code numerical ID of the law that permits this.


Offline aztecan

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Re: 401k's and market downturns
« Reply #20 on: June 11, 2006, 09:10:12 PM »
Interesting topic. Not long ago, I was watching a PBS program on 401Ks. They were never intended to be the only source of retirement income for an individual, but a supplemental account to be used in addition to a traditional pension.
The clause in the tax code was initially created to address a problem a couple of corporations were having, I think IBM, was one, but I don't remember now.
Anyway, corporate thinking being what it is, big business jumped on the idea and basically shifted the onus of creating retirement funds to the employee, who now foots the majority if not all of the bill.
This saved corporations millions, hence the new summer homes and vacation cottages on Maui. But, I digress.
Fact is, few of us, including myself, have the expertise to follow the market trends, shift our investments around when necessary and actually build up enough money to be able to retire upon. A new trend is for companies to offer 401Ks managed by a broker rather than the individual.
Regardless, the bottom line of the programs is retirement as we have known it is probably a thing of the past. Very few baby boomers will retire with much of an income, because downturns in the market, as we are experiencing now, can wipe a retirement account out within a few weeks.
There were several people interviewed who had already retired, but now didn't have the money to live on they thought they would. Many are starting "second careers," new jobs often not in the same line of work they retired from or with different firms.
Personally, I probably will never retire. I simply will never have enough money accrued to be able to sit back and just enjoy my golden years.
My only solace is I own property, or will within in a few years. So, at least I will have a place to live while I don my blue vest and greet people as they walk into the nearby Walmart.

HUGS,

Mark
"May your life preach more loudly than your lips."
~ William Ellery Channing (Unitarian Minister)

Offline Cliff

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Re: 401k's and market downturns
« Reply #21 on: June 12, 2006, 06:13:28 AM »
Hi Mark,

I think I saw that program too.  It's funny how quickly 401K plans were adopted by companies and pension plans have been dismissed.  Interestingly enough the age of the person typically determines how one feels about 401K.  Younger people tend to like 401K plans and dislike traditional pension plans.  But the older one gets the less likely they are comfortable with 401K plans.

I completely agree with you in that 401Ks push a lot of the burden on the employee to make sound investment decisions.  One area companies should be required to improve is how they manage their plans and educate employees on making investment decisions.  But at the end of the day, employees really need to take responsibility for their retirement needs and not assume that someone else, (whether it's their employer or the government), will have their best interests at heart.

For me a 401K plan is great because I feel like the money is mine.  I leave and I can take it with me.  If I need it, I can cash it out or take out a loan against it.  Those are things you can't do with a pension plan, so in effect it gives you immediate equity whereas a pension plan is more like an equity-less annuity.

I suppose you can keep your pension plan when you change jobs, but they tend to favor employees who work for a very long time with a company, so people who tend to switch employment positions often, (as in at least 2-3 times during their career), don't have the opportunity to vest adequately in those plans, which probably explains why younger people tend to favor 401Ks, since they are more likely to switch jobs as compared to workers at their age say 20-30 years ago (and have less company loyalty).

Offline jack

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Re: 401k's and market downturns
« Reply #22 on: June 12, 2006, 06:45:23 AM »
I have been buying stock and learning how stupid I am since the mid 70s. Never forget having 10000 in some oil stock on the toronto exchange back in late 70s. Woke up one moring and discover the TO exchange had been shut down. Oh well.  I owned INTC in early 80s. Sold in 89. Cant tell you how often I calculated how much it was would have been worth in late 90s. I experienced the crash of 87 and the most recent crash. 87 was a sudden heart attack and 2000 was relentless chinese water torture. The lessons learned from 87 didnt really apply to the crash of 2000 but I think it was 02 or 03 that was an awesome year.
I shorted housing a year ago and lost a ton. Several months after I covered,of course housing crashed.
I only owned several stock till late 90s and did very well, but things have changed. Low brokerage commisions make it painless to get out of something you dont like. In the old days you thought twice about paying some crook from merril 500 bucks to sell 1000 shares, now its 8 bucks.
You can play the buffet way,buy and hold, or the frantic Cramer way. There are times when one works and the other doesnt. I for one believe the best way is to find stocks that have businesses you understand and that you respect and that make money or funds with good track records.
Remember that the funds and often the stocks that go up the fastest come down even faster and in investing its often the tortoise who comes in first.
There are no sure things. Dont chase stocks or funds, if you feel like you are missing something, you have missed it.

Offline cmhjeff

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Re: 401k's and market downturns
« Reply #23 on: June 12, 2006, 09:16:16 AM »
Hey Bailey,even with my HR background I know very little about 401K. I have my funds split over 4 options but don't change them simply because I'm not educated enough and wouldn't know where to move them.  I have funds in the 401K at work then there is money in ESOP and ESPP plans which just makes thing's more confusing.  If I could I  would just withdraw the $$$ and do some traveling or pay off some bills but the only way to do that would be to quit and I can't do that just yet because I need the health insurance.  Good topic,wish I knew more about it.

Offline DingoBoi

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Re: 401k's and market downturns
« Reply #24 on: June 12, 2006, 11:58:33 AM »
contact your 401k recordkeeper and request a SUMMARY PLAN DESCRIPTION.   They may have a printed booklet with a good summary of the plan, or tell you how to access it online.  Generally, this is a good overview of the plan


 


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