OUCH!!! 401K woes

[Rose Pink]

Logged on this morning to check the balance of our 401k--was afraid to do it because of how the market is doing, but did it anyway. In the last two months we have lost an entire year's worth of savings. For those of you who are brave, you may say that I need to just ride it out and then you'll go on to say how, historically, the market has done well.

But this is my money, not just some market statistic. I am close to moving every cent of it into the "safe" fund. It may only be earning a piddly less than one percent but at least it's not losing my principal.

And I am in such a sorry mood, that I don't want to hear any of your "I consistently earn 9%" stories. Don't rub it in.

Just pity me and my timidity.

 

[jerseygirl]

Rose --

I feel your pain -- I'm down about a year's worth of compensation, not just a year's worth of savings (I work in a sector that is getting killed, and have historically kept about 40% of my 401K in my own company's stock). I too am tempted to bail ... but so far have resisted. In 2000, I switched a significant amount of money to cash, and felt really smart when all my friends were crying in 2001 and 2002. But, then I waited too long to get back in ... wasn't feeling nearly so smug when all was said and done.

It's a tough call at this point .... too bail, or not to bail ... that is the question.

 

[lprstn]

I move mine around all the time, and recently moved mine to a "safe" fund, and still its not doing that good. I think I'll take a loan out on it, put the $$ in a CD and pay myself back @ 7.5% which would be more than I would get investing it in my 401K right now:hysterical:

 

[CMF]

Silver Lining?

My 401K contributions are now going to the purchase of undervalued stocks.

Charles

 

[geekette]

I hadn't checked in a while but this thread prompted me to do so. I'm down a bit, but nothing super-scary. Of course, could be that my account is miniscule compared to yours so my loss could be the same percentage as yours. Doesn't matter - you are concerned.

If you bail out, you'll miss the run up. Assuming that you are still contributing, remember that you are buying low if you keep your elections the same, which offsets the highs that you bought at in October.

Really, tho, if you can't sleep at night, bail. You should not have to suffer thru night terrors over this, so do whatever will give you the warm fuzzy.

Otherwise, take a deep breath and don't think about it for a while. This too shall pass.

 

[Dave M]

If there's one thing that's certain about the stock market, it's that the market will go up and down (and up and down....).

If you're a long way from retirement, relax, don't worry about it and sit tight. As geekette accurately states, "this too shall pass" and if you sell, "you'll miss the run-up".

If you read the details behind what's going on, you'll see that, for the most part, institutions - the experts - are sitting tight. As often happens when the market drops, it's the little guys (like us) who are selling. That should tell you something.

 

[otis8756]

It's all relative and it all depends on your skills and abilities (and maybe a little luck). I let mine dwindle down by 50% in the last downturn before I finally caught my wind. Now I have a little more to lose and I just put mine in a safe haven 2 days ago. If you study this stuff, you will learn that the stock market's average returns over the past 75 years, inlcuding the depression, are anywhere between 12 & 15%, depending on who is doing the talking. If you guessed wrong in timing the market and missed the "up" days, you know, the ones that get everyone's attention, the overall average return drops to somewhere around 4%. That oughta get your attention. On the other hand, had I pulled my funds in the last downturn just before it went south, then reinvested at the bottom, I would have doubled my money rather than losing half of it. Guess right and you are the big winner, guess wrong and you may as well leave your money in the savings account...

 

[stevedmatt]

How many years of savings have you made when the market was doing good?


If your safe fund is only pulling one %, that's pretty sad. That fund would also be losing value in the sence that is isn't even earning at the inflation rate.

I have 20 years until retirement, so for me, staying where I am at is fine. I have also lost about a years worth of contributions in just 2 months, but when I compare my account to those who started around the same time as me, I have about 20-25% more than they do because I have been aggressive.

To each his/her own.

 

[PigsDad]

Just keep on repeating to yourself: "dollar cost averaging is your friend".

In fact, your account will have better returns the more volatile it is, when you dollar cost average (over the long term).

Kurt

 

["Roger"]

You're right, Kurt. The downside of that, however, is when you withdraw from your savings, the same strategy works in reverse. That is, when you withdraw at a constant amount, you end up losing at the same rate that dollar cost averaging helps you when you deposit.

Still, it is the best stategy in town. Studies have shown that market timers end up making less than market averages. This is partly due to bad timing, but also due to higher brokerage fees.

 

[Passepartout]

Mine is well diversified, but still, there's that 'sinking feeling'. Well, there is some solace in buying more shares at the lower prices, and some comfort in the realization that it ain't money until you cash in the shares. While it's in those long term retirement accounts, its not money, just a number to use to keep score.

Last fall DW sold out some (6 figures) shares and bought CDs. Boy I hate a smug woman!

So it goes

Jim Ricks

 

[Rose Pink]

I move mine around all the time, and recently moved mine to a "safe" fund, and still its not doing that good. I think I'll take a loan out on it, put the $$ in a CD and pay myself back @ 7.5% which would be more than I would get investing it in my 401K right now:hysterical:

You laugh, but we did take out some loans several years ago to pay for needed things because the interest rate was lower than what we could get from the bank and because the interest we were paying back to ourselves was higher than we were earning in the 401k.

As you mentioned (and Jim's wife did), buying CDs makes more sense at this point. But .... if the market swings back up, maybe not. And if DH were to get laid off, we would have to pay the loan back sooner than planned. Don't want to get caught in that trap.

I do try to console myself that we are now "buying low." I feel a little better to hear others' sad stories. Misery loves company. I keep hoping the Girl Scouts will come by tonight with the cookies I ordered. I rented the newest version of Pride and Prejudice (the one with Mr. Darcy striding purposefully through the mist with his long coat flowing behind him--sigh) and I could really use some chocolate to go with it tonight.

 

[caribbeansun]

Of course some would say that adding to a losing position on the way down isn't your friend.

Just keep on repeating to yourself: "dollar cost averaging is your friend".

In fact, your account will have better returns the more volatile it is, when you dollar cost average (over the long term).

Kurt

 

[geekette]

Of course some would say that adding to a losing position on the way down isn't your friend.

Until it comes back up. It has always come back up.

Easy for me to say, there are decades before I need the money. I'll never completely abandon stocks, either, tho I will become less aggressive as I'm reaching the end of contributing.

 

[PigsDad]

You're right, Kurt. The downside of that, however, is when you withdraw from your savings, the same strategy works in reverse. That is, when you withdraw at a constant amount, you end up losing at the same rate that dollar cost averaging helps you when you deposit.

True, but hopefully your account mix will be shifted to more stable funds as you get close to the withdrawal phase, and then it would not be a problem.

Kurt

 

[frenchieinme]

My wife thinks like Rose Pink and...

My wife thinks like Rose Pink so I showed her the past 1998 to 2007 results of just one fund we happen to be in. The returns go like this...+16.72%, + 24.58, + 4.27, - 9.55, - 17.34, + 31.96, + 13.91, +11.61, + 19.24 and in 2007 + 13.55. Presently it is - 7% in 2008. So what?

Too many remember the - 9.55 and - 17.34 and forget the +s. People tend to invest on the up side and sell on the down side. It should be just the opposite---buy on the down side and sell on the upside. People who sold on the - years above missed out on the +s that followed.

As Dave M. said, it goes up and down just like a roller coaster. By the way, what happens to people who get off the roller coaster during the ride? :rofl:

frenchieinme

 

[normab]

hang tough!

Just my 51 year old opinion:

I agree with what some others have said. 401K investing is about the long haul--steady dollar cost averaging, and not trying to time the market and move stuff around because of emotional decisions. I too have not seen a change in my balance since July 07 although I put tons in every month. I just remind myself that I am buying shares on sale!!!

The two things you should be doing, that help eliminate emotional decisions, are diversifying into ~5 different types of investments and rebalancing once or twice a year. This way it forces you to sell high and buy low. Who'da thunk?

Any money that is for use in more than 5 years should not be in CDs, it should be in the market. This applies to 401Ks no matter how old you are. Money you know you will use in the next couple of years should be more conservatively invested, i.e. CDs or something similar.

Good Luck!
Norma

PS. Eat Chocolate It will make you feel better!

 

[skim118]

I move mine around all the time, and recently moved mine to a "safe" fund, and still its not doing that good. I think I'll take a loan out on it, put the $$ in a CD and pay myself back @ 7.5% which would be more than I would get investing it in my 401K right now:hysterical:

I don't think that is a good idea.

You are going to pay tax on the CD interest; you are "paying yourself" 7.5% for this loan; except you are repaying this interest with after-tax money and it is going to be taxed again eventually.

Taking a loan from a 401(k) is OK in case of real hardship; I doubt you are going to gain much with this "interest-rate arbitrage".

 

[3kids4me]

I don't think that is a good idea.

You are going to pay tax on the CD interest; you are "paying yourself" 7.5% for this loan; except you are repaying this interest with after-tax money and it is going to be taxed again eventually.

Taking a loan from a 401(k) is OK in case of real hardship; I doubt you are going to gain much with this "interest-rate arbitrage".

Skim, I think that you forgot to look at the big laughing smilie....

BTW, the whole idea of thinking how dollar cost averaging will make everything better only works if you're still contributing to your 401K, and it's not a rollover that's sitting around collecting dust like mine is....

 

[andrea t]

I keep hoping the Girl Scouts will come by tonight with the cookies I ordered. I rented the newest version of Pride and Prejudice (the one with Mr. Darcy striding purposefully through the mist with his long coat flowing behind him--sigh) and I could really use some chocolate to go with it tonight.

That's how I spent Friday night! It was perfect!

 

[DonM]

People tend to invest on the up side and sell on the down side. It should be just the opposite---buy on the down side and sell on the upside.

Wasn't it John D Rockefeller who said something to the effect that when there's blood running in the streets- that's when the most money can be earned?

 

[Rose Pink]

After losing another $1500 or so today, please tell me again why I am sitting tight watching my retirement money going down the drain. Since the balance today is considerably less than the balance last December 31, that means that not only have we lost principle but every single dollar we've contributed this year is "gone." What did it buy? Doesn't seem to me it bought anything. Am I right in assuming we have more shares than we did before but they are just valued less and that some day--barring a crash--they will increase in value? There are so many ways to crunch the numbers that my mind just can't seem to wrap around it.

It would seem prudent to transfer all of it into the guaranteed fund so that no principle is lost and then when the market begins to look good again, transfer it back into more aggressive stocks---but doesn't that mean I missed out on buying those stocks when they were deeply discounted?

And where are my Girl Scout cookies!!!! I've called and get no answer.

 

[Lawlar]

Yikes!!!

After losing another $1500 or so today, please tell me again why I am sitting tight watching my retirement money going down the drain.

Here is my comment about my investments in the stock market:.........YIKES!!!!!!

I hope the FED has a plan to save our economy. At the moment it seems like everything is going down fast.

Those $600 checks are going to work, right??? Maybe we could get the FED to pay our 2008 maintenance fees - that would help get the economy going!

 

[dioxide45]

It would seem prudent to transfer all of it into the guaranteed fund so that no principle is lost and then when the market begins to look good again, transfer it back into more aggressive stocks---but doesn't that mean I missed out on buying those stocks when they were deeply discounted?

If you sell now you are guarantying a loss. Right now your loss is only on paper.
Buy low (now) and sell high (when the market rebounds). While it may seem tempting to sell all your stocks now, you would be selling them low. When you rebuy you may not buy as many shares as you currently own now, leaving you farther behind. Your contributions this year have been buying more shares. If you are young, you should actually hope for a low market, this is where you load up on shares and when you reach retirement age that is when you want the market to run up. All those shares will be worth more.

 

[Rose Pink]

We are in our 50's. Not exactly young but still with a few decades ahead of us. My mom is going to be 89 this year and her mom lived to be 92. DH's dad is 85. We don't want to have to work that long! DH says his retirement plan is to move in with the kids and let them take care of him.

BTW, I did track down the GS cookies and ate the entire box of Samoas in one sitting. Maybe the heart attack will come sooner than later.