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simplelife4me
3-1-12, 12:29am
In 2007 I dumped my entire 401K in an index fund only to watch it tank over the next year. I decided to leave that amount there and put all new in a money market fund. One year ago it did gain back all it lost, but I didn't notice it had gained all of it back plus a little til yesterday, and I yanked it right back out of the index fund and back in the money market fund. It took 4.5 years.

sweetana3
3-1-12, 6:55am
Investments, which is what a 401K is, should not be viewed emotionally which is what "yanking it around" is based upon. You need balance and a very long term view with established goals.

We have a significant portfolio and have survived a number of big downturns since 1986. I can remember days where the Dow lost over 500 points. It has, over time, consistently given us a return higher than the prime interest rate. We over time got out of individual stocks and have a well balanced group of funds to cover large, small, and international investments.

Our tracking showed us our yearly return has varied from -6% to over +30% over 1986-2011.

If you cannot live with the downturns to achieve the investment return, start small and put a % into stock as a learning exercise, but please dont let emotion dictate your future.

loosechickens
3-1-12, 3:27pm
I could not agree with anyone more than sweetana3's post. Making investment decisions emotionally (which sounds like what you are describing) is the single largest mistake that small investors and savers make. Markets go up and markets go down, and like sweetana, we've survived a lot of ups and downs, including the tech bubble burst, and the "big one" in 2008, without making any significant changes in how our money is invested. Because it is INVESTED, diversified, and with a long term plan.

What you are doing is not "a plan", it's reacting emotionally to fear of loss. Yet, most of the time, when people make their decisions based on that, they lose even more. To have long term savings for retirement that is a number of years away in something like a money market fund is almost a guaranteed recipe for disaster. You may maintain the actual "number" of dollars you put in, but the erosion in buying power over time will likely be astronomical.

I remember that after WWII, my Dad kept his $5,000 paid up G.I. insurance, (which at the time represented about two years income for my mom), and when he died, yep, she got that $5,000, but by 1987, that hardly covered a month or two of expenses. Which is what is likely to happen to your 401k invested over time in something like a money market fund. Sometimes the illusion of safety is so compelling that folks don't realize how the dangers they don't see can be even worse. JMHO

I guess you can, at least, be glad that you didn't react as emotionally as many did, and yank that money when the stocks tanked. At least you waited. It could have been worse. But...........

lhamo
3-1-12, 5:22pm
I agree with those posting above that it is best to have a strategy and to let that rule your investment decisions, not your emotions.

It would be interesting to do some projections about where your account balances would be if you had been dollar cost averaging into that index fund throughout this period instead of putting your money into the MM fund (where you are actually losing money, considering inflation). My guess is that the overall balance would probably be at least 50% higher. That is based on what has happened with our retirement accounts, which are invested primarily in target retirement funds and which I have been tracking pretty closely over the past several years.

Yes, it is frustrating to be putting money in and not seeing any immediate growth, but if you focus on the idea that you are buying things "on sale" it helps. I was actually pleased to see that the per share value of our retirement investments went DOWN yesterday -- meant we got a few more shares with this latest biweekly automatic deduction. Getting good stuff on sale -- what's not to like? :)

lhamo

iris lily
3-1-12, 9:11pm
This thread is timely because I am ready to pull out of investments.

I've contributed the same amount each month for many years, and sometimes I think: I should INCREASE that amount, but when the markets are down I think whoosh, glad I didn't sink a lot into those investments. My investment "strategy" has been to not change (ok, that's not necessarily good!) but also, not obsess when things take a plunge. Basically I pretty much don't pay attention to how my specific funds are doing but I watch the Dow. So, my funds have done oookay but nothing great although DH did compute, for me, how much better they did than had I just put that $ into CDs.

Zoebird
3-2-12, 3:59am
We tended to be conservative investors in our 401k from the beginning, which means that each downturn that we've experienced, we haven't lost much at all, and then we were gaining pretty steadily while others had lost a lot.

We rolled out our 401k when DH left the company into our savings (to have access to, paid taxes on it, -- so that we could use it as seed money to move here) and then put the rest into very similar mutual funds in an IRA so that we could then have the same sort of gentle, consistent increases.

We are young, and everyone tells us to be riskier in these investments. But we just can't bring ourselves to be risky there. I think because we are risky in other ways. LOL

So, we pulled 1/2 of our 401k out as an amount that we could use here (still untouched), and then we have the other 1/2 in the mutual funds, which has given us about 1/4 of the amount back. We haven't really put anything into it, but when we feel established/secure here, we'll likely take the other 1/2 and put it into mutual funds as well, or some other conservative what-not there.

Here, our next process is moving from sustainable to paying-ourselves-back (I have a specific number in mind) which will then be rolled into 1. emergency fund; 2. savings; and 3. retirement. We'll do retirement here in a similar formation -- conservative and consistent without big peaks and valleys -- because it is 'safe money' and not 'risk money.'

After that (and getting rid of the school debt), then we'll start saving for a house (and we aren't sure if we want to buy or not), and then just keep on going from there. :D

morris_rl
3-9-12, 7:17pm
I agree with those posting above that it is best to have a strategy and to let that rule your investment decisions, not your emotions.

It would be interesting to do some projections about where your account balances would be if you had been dollar cost averaging into that index fund throughout this period instead of putting your money into the MM fund (where you are actually losing money, considering inflation). My guess is that the overall balance would probably be at least 50% higher. That is based on what has happened with our retirement accounts, which are invested primarily in target retirement funds and which I have been tracking pretty closely over the past several years.

Yes, it is frustrating to be putting money in and not seeing any immediate growth, but if you focus on the idea that you are buying things "on sale" it helps. I was actually pleased to see that the per share value of our retirement investments went DOWN yesterday -- meant we got a few more shares with this latest biweekly automatic deduction. Getting good stuff on sale -- what's not to like? :)

lhamo

Concur.

As Warren Buffett said regarding investing in stocks during a severe downturn of the stock market:

"A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying.

This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

From 1997 Chairman's Letter To the Shareholders of Berkshire Hathaway Inc.


And there you have it.

In the last big downturn when the S&P500 index was down 57%, I was buying somewhat more than two shares every two weeks for my 401(k) for every one I had been getting two years before. In fact, my 401(k) is currently more than quadruple what it was on 31 DEC 1999 in large part BECAUSE of the huge down markets in the intervening 12 years.

I also tend to freak out a bit as the stock market is plunging like a sounding whale. My emotions tell me to sell out and put everything into certificates of deposit, and my rational brain and my financial training and education tell me to stay the course.

Fortunately, my rational brain has prevailed so far...


Best,


Rodger

Rogar
3-9-12, 9:46pm
The biggest down side to the buy and hold strategy is if the stock market tanks and while it's down you need to withdraw substantial amounts from stock investments for expenses or whatever. Especially risky for those in retirement and living off investments. I expect market volatility will be a fact of life and it took a long time for this market to come back and the DOW still isn't back to it's high 4 or so years ago. And was a short comeback compared to the crash of '29.

I mostly self-manage my investments but a Fidelity person checks in every few months. In my last conversation, the rep said that I'd done very well all considered. Not getting rich mind you, but I readjusted back into the stock market when it was down and have a decent percentage in bond funds. Bond fund values have done well with dropping interest rates. It makes sense to me to be well diversified and to re-balance ever year or so when your target diversification percentages get unbalanced away from where you have intended them to be.

I think those "target" retirement mutual funds are a good deal for people who don't want to mess with things. They rebalance for you and gradually shift from equities to fixed income as you get older.

freein05
3-9-12, 11:28pm
I buy stocks and funds that pay a dividend. During the big sell off my portfolio dropped a bunch in value. It is back to where it was before the big sell off. I continued to to receive my dividends all the time the market was dropping and even invested more in good quality dividend paying stocks. I have been living off the dividends and interest of my portfolio for over 7 years. SS kicked in about 3 years ago so I live a comfortable life. I did use the 4% rule and have never had to sell a stock for income.

My plan of investing in dividend paying stocks for retirement worked for me. Once I retired I rolled my 401K into an IRA where I have more control over what I can invest in.

Zoe Girl
3-11-12, 10:38pm
I had a small 401K from working a part time job, it was in company stock that was not holding its value totally. I might have kept it there but it was so low I had to move it. So I laddered IRA CD's with it. I have some other things that are investments I don't have choices in from my divorce but no other CD's so it was a good balance. For now with small amounts I am getting I am focused more on laddering CD's with amounts up to $1,000.

Florence
3-12-12, 10:17pm
We are buy and hold investors in mutual funds. I do a quarterly Net Worth statement and that is the only time that I look at them. Once a year, at Open Enrollment we determine is our allocation is what we want it to be. We are probably a bit more aggressive than some would be comfortable with though.