401K Investment question

Discussion in 'Archived Threads 2001-2004' started by Scott Wong, Sep 26, 2002.

  1. Scott Wong

    Scott Wong Second Unit

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    I've got a question about my 401K for any of you Investment Advisors on the Forum. I've been noticing lately I've been losing money. I'm only 28 years old but supposedly, now is the time to start taking this stuff seriously. Prior to September 11th, 2001, I had been investing my contributions fairly aggressively. I received my quarterly statement not too long ago and noticed a prety hefty loss. I know the stock market hasn't been doing all that well.
    I'm currently at the website of my company's 401K plan and I can change all of my investment elections online. It's broken down as the following:
    Money Market
    Interest Income
    Bond
    Equity Income
    S&P 500 Index
    Equity Growth
    Large Cap Equity Growth
    International Equity
    Small/Mid Cap Equity
    As I mentioned earlier, prior to 09/11/01, I had been investing fairly aggressively since it is a 401K account and I'm only 28 years old. I don't necessarily enjoy the idea of losing money either. Friends I've talked to said I should get out of any of the stock funds and transfer contributions to the Money Market funds, bonds, etc, etc.
    I can break down and divide contributions up to as small as 5%. I was thinking about diving my contributions into the Money Market fund, Interest Income, Bond, and Equity Income. 25% contribution in each of those funds.
    Perhaps this is a stupid question (I'm really not into "investments" and don't know a whole lot) but given the aforementioned information, how would any of you break down your contributions if you were me??
    And yes, I indemnify and hold harmless anyone who replies to my thread... hahaha!! [​IMG] Just looking for some opinions...
    Scott.
     
  2. BrianB

    BrianB Producer

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  3. Evan S

    Evan S Cinematographer

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    Scott,

    I'm studying for the CFA designation (Chartered Financial Analyst) and have worked in financial services for about 5 years. I'm 30 years old.

    WHATEVER YOU DO, DO NOT MOVE YOUR INVESTMENTS TO MONEY MARKET FUNDS!!! The 401K is designed for you to save TILL RETIREMENT. What you should realize is that the stock market will fluctuate up and down for the lifetime of your participation. Right now, it's down. IT WILL COME BACK UP. REPEAT: IT WILL COME BACK UP. Any contributions you make now are being bought in at low valuations. You do not want to sell (buy into money market funds, exiting equities) at the low valuations. The old adage...buy low and sell high. A person of your age should be invested aggressively...approximately 80-85% stocks and 15% bonds or money market funds.

    Look to get into growth funds or at least invest in something like an S&P 500 index fund. Do not invest in real speculative securities like junk bonds or sector funds. Trust me. You want to be buying right now and riding out the storm. Please do not panic. Only move the money to money market funds if you plan to use it for the purchase of a home or something of that nature.
     
  4. Todd Hochard

    Todd Hochard Cinematographer

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  5. Mark Schermerhorn

    Mark Schermerhorn Second Unit

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    I've had 90% of my 401k in bonds since I started (aug. 2000) the job I just lost today...heh. It's up about 8% this year, but when interest rates go up, it will lose some value. In my opinion the market isn't coming back anytime soon. Compared to historical averages, P/E ratio's are still high. My 401k will go back into stocks eventually, but it will probably be several years. I'll be investing some money in individual stocks fairly soon, though. There is always money to be made somewhere [​IMG]
     
  6. Mark Schermerhorn

    Mark Schermerhorn Second Unit

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    oh heh...Todd I just got laid off from a company that is a uh, spinoff of Lucent. And oh yeah they have a large Silicon fab in your town. hehe.
     
  7. MarcVH

    MarcVH Second Unit

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    You're wise to be thinking about asset allocation and being prudent -- this downturn has caused a lot of people with aggressive investment portfolios to discover that they didn't realize what they were signing up for.

    There are lots of guidelines for investing retirement money; one rule of thumb I've heard is "invest your age in bonds", i.e. at age 28 you might consider having around 28% of your retirement assets in bonds. I find this a bit too conservative but there's no one right answer.

    I don't know any theory of investing which suggests that a 28 year old invest any of his retirement assets in a money market -- with current interest rates, you probably won't even earn enough to keep up with inflation.
     
  8. Scott Merryfield

    Scott Merryfield Executive Producer

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    Having diversity in your investments is very important, so that a downturn in any section will not kill your portfolio. Also consider the tax implications of buying/selling. You will not be taxed now on any capital gains in your 401K plan, but will be taxed in regular investment accounts. Conversely, now is a good time to sell funds in regular investment accounts to take a loss on your taxes, if you just want to switch to a similar fund (e.g. from one S&P 500 index fund to another). Why not gain something positive from the down market?

    I look at my 401K, Roth IRA and rollover IRA's as long term investments, so short term losses are not a huge concern. However, I also weigh the tax implications of the holdings in these accounts over those in regular investment accounts.
     
  9. Ted Lee

    Ted Lee Lead Actor

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    i'm in the same boat as you. as others have said, you're best bet is to "ride it out". you can't touch the money anyway, unless you want to take a huge hit.
    check out my thread below. near the bottom of my thread i've also listed some good financial sites you should check out. for sure, check out morningstar.com and fool.com
    http://www.hometheaterforum.com/htfo...light=401k+ted
     
  10. Philip Hamm

    Philip Hamm Lead Actor

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    Evan S is entirely correct. NOW IS THE TIME TO BUY BUY BUY into AGGRESSIVE HIGH RISK FUNDS!!! [​IMG] The market's down, and not going up any time soon. The way to make money is simply BUY LOW SELL HIGH. The market is LOW now, do you think the market will go back up in the next 32 years? THE ANSWER IS YES.
    Seriously, I have about 5% of my 401(k) in medium risk money markets just as a symbolic gesture.
     
  11. DaveF

    DaveF Moderator
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  12. LDfan

    LDfan Supporting Actor

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    My company's 401k plan also has a Gold/Precious Metal fund. So far this year that fund has seen over 50% increase in value while everything else has gone down. This is a common event when the economy crumbles.

    Jeff
     
  13. Philip Hamm

    Philip Hamm Lead Actor

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  14. Thomas Reagan

    Thomas Reagan Stunt Coordinator

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    Scott,
    You've got a long way to go before retirement. Whatever you do, keep investing in those mutual funds! Pay attention to the number of shares you have rather than their current value. It's a safe bet that your funds will see better days in the next 35 years or so.
    You'll be able to look back and smile at all the shares you were able to buy so cheaply! [​IMG]
    Thos.
     
  15. DaveF

    DaveF Moderator
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  16. BrianW

    BrianW Cinematographer

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    Scott, here’s a hypothetical situation (and word problem[​IMG]) for you to consider:
    Let’s say that you have just begun contributing $100 per month into a high-risk fund. Although its past performance looks pretty good, you’ve kept your contribution to $100 per month to limit your losses.
    The first month you contribute, the fund’s shares are worth $100. (We may as well keep the math simple, eh?) The day after your first contribution, the share price drops to $1, losing 99% of its value! You consider getting out, but what’s the point? All you have left in the fund is a dollar! Besides, Evan still claims that you should stick with it for the long term.
    The second month you contribute, the fund’s share price hasn’t moved and is still at a measly $1 price point.
    The third month you contribute, the fund’s share price has moved up another measly dollar, to $2. This is still 98% below what the share price was when you started out! You can’t stand it any more. You conclude that Evan (that hypothetical SOB!) had to have been wrong, and you decide to take what little money you have left out of this dismal fund. You’d be happy now just to break even, but you simply can’t wait for the fund’s stock price to skyrocket to the price at which you would eventually break even.
    Or can you?
    Let’s assume that the fund price continues to go up just a dollar a month for the next 98 months, back to the original $100 share price. If you continue to contribute $100 to the fund every month, how long would it take for you to break even?
    I think you’ll be surprised at the answer. (Work it out before you peek!)
    Answer:
    At just $2 a share, you already have broken even!
    So far, you’ve contributed $300 into the fund.
    In month 1, you purchased 1 share at $100.
    In month 2, you purchased 100 shares at $1.
    In month 3, you purchased 50 shares at $2.
    This give you 151 shares, worth $2 apiece, making your fund worth $302. This is $2 above the break-even point of your original $300 contribution.
    Evan and the others speak the truth. Don’t underestimate the value of dollar-cost averaging, especially at your very young age.
     
  17. Evan S

    Evan S Cinematographer

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    Brian, superb example...couldn't have said it/explained it better. Anyone who reads this thread should be able to look at your post and realize the most fundamental element of LONG TERM investing...buy low and sell high.

    Because of human nature however, this is rarely the case and usually the opposite. People sell when the market is tanking and buy back in when it's skyrocketing upward. Your example is perfect in showing why this is skewed logic.
     
  18. Todd Hochard

    Todd Hochard Cinematographer

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    Brian,
    Great example. Too bad it doesn't work for individual stocks.[​IMG] It could, but the vast majority of stocks that move from $100 to $1, usually move right on to zero. I'm familiar with this.
    Then again, if everyone bought low and sold high, there would be no lows and no highs, now would there? I'm just trying to get anywhere near the low and high points myself- which I've had some difficulty with.[​IMG]
    Todd
     
  19. Scott Wong

    Scott Wong Second Unit

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    I definitely appreciate all of the replies... thank you again!

    Scott.
     
  20. James Q Jenkins

    James Q Jenkins Stunt Coordinator

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