Why? Because investors bought when stocks were on a tear and sold when they fell in value.
"It's not because they owned the wrong investment," said Scott Thoma, a member of the investment policy committee at investment company Edward Jones. "It's because they bought high and they sold low."
Focus on what you can control
Plenty of investors fear the system is rigged against them -- that big-money investors with sophisticated trading software are stacking the deck against the little guy. But even the sophisticates fell hard "during the tech crash, during the last crash and probably during this one," Evensky said.
Instead of worrying about them, Evensky said, focus on what you can control. For one, mutual-fund expenses.
David Swensen, the chief investment officer at Yale University, said in a recent opinion piece in The New York Times that "even Morningstar concludes . . . that low costs do a better job of predicting superior performance than do the firm's own five-star ratings."
While 401k's and other defined-contribution plans are far from perfect, most offer access to cheap index funds.
You also can diversify your holdings. In addition to U.S. stocks and bonds, consider emerging-market stocks and bonds, commodities, Treasury inflation-protected securities and real-estate investment trusts, among other options.
If you don't have access to much variety in your 401k, consider investing in that plan up to the full employer match, and then investing some money through an individual retirement account to get access to more investment options.
You're also in control of rebalancing. Once you've decided what percentage of your portfolio to invest in each asset class, revisit your portfolio quarterly. If necessary, sell investments that have grown beyond your target allocation and buy more of those that have dropped below your target.
Investors tend to focus on market swoons, but that's not the only risk you face. "In our definition, risk is not reaching your long-term goal," Thoma said.
And don't confuse certainty with safety. "Putting your money in CDs may feel very certain -- you know you'll get every penny back -- but it's very unlikely to be safe for most investors because there's not going to be enough money to pay the bills after you factor in inflation," Evensky said.
Another risk: taxes. You'll owe income tax on that 401k nest egg when you start pulling the money out.
And keep in mind, that "lost decade" wasn't so for everyone. If you put $10,000 into the S&P 500 in 2000, you'd have about the same amount in 2010, Thoma said. But investors who put in $10,000 over time in regular monthly installments? "Their money would have grown to over $14,000 during that time frame, if you were in a 65/35 portfolio," Thoma said.
"It's because you invested over time," he said. "A lot of your money was invested lower and benefited from that recovery. That's where people have to focus more often than not."
This article was reported by Andrea Coombes for MarketWatch.
VIDEO ON MSN MONEY
All sounds good to me. However I don't know anyone it has worked for. I love these broad, sweeping statements re the market. The market return was blah, blah. That's if you owned every stock but the vast majority of us don't. Get in and stay in they say. Well that doesn't work either. If anyone bothers to look, the Nasdaq is about half what it was and the Dow never recovered.
I tried brokers, I studied hard myself and I tried funds. With funds the broker would say "it's up by this much". I'd get out my calculator and "behold" my figures didn't show that at all. It finally dawned on me. Selling the market is big, big business. I use the word "business" because that's exactly what it is. Like selling cars, real estate or anything else. The sales folks always hype their product. The above article is part of that business. Remember, the first priority of anyone selling anything is their own bank account. Do people make money in the market, sure do. Just not me or anyone else I know.
meme..., I know another worker drone who lost 10K last week in the downturn.
That's 2 years worth of hard work flushed. That's two years of punishing overtime that nurse worked. And that's with having a financial adviser managing her account!
And don't tell me that the drone will regain it because of "compounding". BS.
Unless you're a millionaire and able to weather downturns, worker drones with their little 401Ks will sink if the economy goes south. Guaranteed.
Everyone was sold a slick idea back in the mid 80s that if one invested one would become rich. The slick adds were just that, slick to bait you to dump your hard earned money in Wall Street so that others would benefit from it-not you the investor.
Are you out of your mind?
Unless you have millions, the stock market is no place for worker drones. A pitiful 200K in a 401K or stock option account can be eaten up very quickly with a Wall Street downturn; millionaires can recover, worker drones don't.
Nice try, but a bit too much like a high school pep rally for my tastes!!! Do you know that if the average stock portfolio had been withdrawn in the Fall of 2007 and just buried in cash in the backyard that it would be worth more now than for all but a handful of stocks and mutual funds??? What is the true (non-doctored) rate of inflation? Well, if gold and silver are both worth four times what they were in 2007....
No, I'm afraid that the average individual retirement investor has been so traumatized by the wild gyrations of obvious immense market manipulation that it may be some time before another group of suckers can be cultivated whose memory will not include these last four years. Remember that an awful lot of would-be individual retirement investors got burned royally during the tech bubble too.
Take me for instance: I was an enthusiastic individual retirement plan investor with a mid 5-figure portfolio in 2007, both in a 401K and an IRA, as well as some individual stocks, and as of July 18th, I am no longer in any stocks or funds, and a really warm place down below is going to have to freeze-over before anyone is going to be able to coax me back into believing that our financial markets are not obviously highly manipulated, with very little chance of success for the average small investor.
No, at the age of 55, I have decided that it would be better to pay-off all of my credit debt and think about buying a newer car. I might even take my family on a cruise, and I might even put some portion of my funds into bullion or even into paying-down my mortgage principal too. After losing 25% of my portfolio value over the last 4 years, not adjusted for 400% inflation, I have decided that becoming as debt-free as is possible needs to be my priority.
In just 4 more years my first whole life policy matures, and just 3 years later, (under current law), I can start withdrawing my social security, followed by liquidating my bullion and rare coins investment, followed by my 2nd whole life policy maturing, followed by selling my trophy house and downsizing, not necessarily in that order.
However, after my own experience with retirement investing going back to 1991, some of it positive but a whole lot of it negative, I have become convinced that nobody should invest in the stock market unless they are fully prepared to lose their investment to the huge insider master manipulators who run our equities markets for their own personal gain. It is awfully obvious when swings of hundreds of points up or down regularly occur that the amount of money involved is way out of the little guy's league. Anyone think that your broker has time to help you when he has to serve a bunch of big investors first?
Sorry but.... You big time master stock manipulators have killed your own golden goose, just like you accuse union workers of doing to their employers and jobs, and now you are going to have to lie in the grave that you have dug for yourselves!!! And as for that plan to kill Social Security and replace it with privatized stock market IRA's.....NOT!!!
Hmm. Sounds like greedy bankers and traders are starting to see the average consumer no longer investing in the stock market and they are getting nervous about their next 6-figure paycheck.
So, they have to tell you "you MUST invest in the Stock Market. You MUST invest in the stock market." Pay no attention to the people around you telling you otherwise. You MUST invest in the stock market.
Would you like some nice fresh brown-colored Koolaid to go with that? It is full of the same stuff that these articles tyring to get you to bankroll the millionaires are full of.
Scooby67 hit the nail on the head. A 401K will not make ends meet alone. I worked for a company that paid a pension but sold us to a company that didn't. I had to re-invest it before the crash. I put it in cd's for 14 months and had to re-invest it in my 401k in 2009 due to tax penalities when the world was ending. Sure I'm ahead by investing in high dividend stocks, bonds and mutual funds, But overall I'm not getting rich by any means. The 401K I have with the new company stopped contributing a few years back. I was putting in 18% and now @10% and the way the market is I'm not gaining much ground. My solution has always been if the government would lower the taxes on your 401K to 5% then it could maybe work. It's all rigged to keep you down from achieving your goals. I'm 55 and have paid into soc. sec since I was 13 years old. The government wants you to work at least till your 67. But companies don't want you when your that old. Lower the retirement age and open up more jobs.
It's ok for the government to waste money and give it to poor countries while our country needs it. While the dems and repubs fight and want you to vote for them, We continue to loose. They are rich and have great medical insurance. They don't give a damn about you or me. They stand up and lie to your face to get your vote. Meanwhile companies work you to death because they don't want to hire. Cramer says to go work in the Dakotas on oil rigs, Well that's fine if you don't own a house. This country needs a leader and I don't see one yet to put my faith in. History will show this has been the decade of idiots.
One of my favorite comments by Warren Buffett goes something like, “95% of all the people investing in the stock market shouldn’t be there”. I see a lot of people on this thread have finally wised up to what he was talking about.
If msn money (obamas mouthpeice) tells you to invest in the stock market---DON'T!
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[BRIEFING.COM] The major averages spent the entire session in a steady downtrend, but despite persistent selling pressure, today's losses were limited in scope. The Dow, S&P 500, and Nasdaq shed between 0.2% and 0.3% while the Russell 2000 lagged, falling 0.9%.
The underperformance of the Russell 2000 was likely owed in part to tax-loss selling, which tends to pick up this time of year. Small-caps often feel that pinch in a stronger fashion than large-cap issues since individual ... More
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