10/28/2013 11:30 PM ET|
With a 401(k), it pays to stay the course in crises
It's tempting to pull out your money amid uncertainty, but consistent savers fare better than others during rough patches, a new study shows.
Uncertainty often makes investors fearful about their investments, and many rush to sell. Yet, in the wake of the government shutdown and debt ceiling debate, a new study shows that maintaining direction through financial crises can have significantly payoffs for retirement savers.
"Investors feel helpless, and when they feel helpless they go straight to cash," said certified financial planner Stacy Francis, president and CEO of Francis Financial, a New York-based investment advisory firm. "But if you keep saving and rebalancing your portfolio, you'll feel more in control."
And after the dust settles, you may also see big returns.
Take the bear market in 2008. Many pulled money out of stocks and stock mutual funds in their retirement and 401(k) plans as the market plunged. The S&P 500 Index ($INX) plummeted nearly 40 percent that year. But since bottoming out in 2009, the S&P 500 is up more than 150 percent.
Many investors who have consistently participated in their 401(k) plans have seen big gains. In fact, they saw their 401(k) account balances rise by an average 23.5 percent from 2007 through 2011, according to the study, by the Investment Company Institute and Employee Benefit Research Institute.
Consistent savers saw an average $28,000 increase in their 401(k) balances, from about $76,500 at the end of 2007 to more than $94,000 at the end of 2011, the institutes found. Meanwhile, the average balance for all 401(k) investors fell about $6,000 in that period, to $59,000 from $65,000.
Financial advisers say workers who save regularly in a 401(k) or employer-sponsored retirement plan are at an advantage when the markets face rough patches, especially if their employer matches their contributions.
"Somebody who is still working, employed and saving can take advantage of a crisis by putting new money to work at potentially lower prices and that's really how wealth is created," said Timothy Courtney, chief investment officer at Exencial Wealth Advisors in Oklahoma City. "By accumulating shares and accumulating wealth at lower prices, then when a recovery does come, your wealth begins to compound."
Financial advisors also suggest rebalancing a 401(k) or other retirement account portfolio with a mix of assets to help to ensure long-term growth.
Susan Fulton, co-founder of FBB Capital Partners in Washington, advises 401(k) savers to pick a percentage of their salary to be deducted and invested in your 401(k), chose a simple allocation of stocks and bonds, and stick to it.
Francis said investors should "take profits when you need to and rebalance at least twice a year." Such rebalancing "can add 1 or 2 percentage points to your return and can help you withstand those large drops in the market," she said.
Consistently saving, regularly rebalancing and staying the course with your 401(k) will also help you build confidence for the next time -- and it will come -- the financial markets face a crisis.
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Since I was in college back in the 80's everything I have ever heard was that you stayed the course. Throughout your career saving for retirement is one of the main goals. One of my professors told me, the younger you are the more risk you can afford. So as time has rolled along, I have started out quite aggressively in my investing and over time have slowly moved to less riskier investments.
I really like like self adjusting funds I am now in that automatically get more conservative each quarter as time passes. So the day I hit retirement, my 401k will be invested in mostly capital preservation funds. Can't stress enough, save as much as you can afford at the earliest age possible.
I don't recall where I saw the information regarding investing but it went something like this.... bill and Susie.. both twenty years old... bill invests $2000 every year till he is 35 years old and after he is 35 invests nothing but leaves his money in the capita; markets. Susie does not start investing any money until she is 35 years old and than invests $2000 every years until she is 65 years old. I believe the number(s) I saw were when bill and Susie both turn 65 (same year) bill will have about $150,000 more than Susie.
start investing early people... start investing early.
401K, IRA's, savings, money markets, ETF's, all are great but don't forget to stash some cash!
I have accumulated $15K in stashed cash, this is my "Screw You" fund. If Uncle Sam gets too greedy I can still say "Screw You" and feed my family in an emergency.
When I first started 401 program I was ignorant about how to use it. Also I couldn't manipulate it via the internet. When 911 happened most of the people I work with pulled out all their money. I stayed the coarse. I lost maybe 25k or more. I should have locked it down but I didn't have easy access to it. Our company switched to another 401k , Now I can watch it, I can freeze it with the click of the mouse.I like it much better. All those guy`s had to start over and I`m setting on over 150k. My little egg moves thousands in a week. On good weeks it make three time my paycheck. If we could get a republican back in office I`m sure it will move much faster. Everyone seems to be much more at ease with the GOP in charge for some reason.
There is no such thing as stay the course in the current environment. We can throw out all the past history and folks that have benefited can basically thank their lucky Stars. That's right folks, luck has played a far bigger role than most might suggest. There is literally no guarantees of future stock markets gains. Another FACT is folks have to talk others in for the Party to Continue. It's called protecting your position. I actually don't mine folks investing when a company matches dollar for dollar. That might be the only time where stay the course could be applied.
Other than situations where companies are matching dollar for dollar, expectations of some continuous Bull Run for decades to come is pure foolery. Global Debt out of Control, Student Debt out of Control, Corporate Debt out of Control, and the Lack of enough Jobs paying a living Wage. Stay the course if you want to end up with a Empty BAG. Take profits when you see fit. Make sure your world doesn't need Stocks and that's it's a choice, not something out of FEAR. With Stocks, you can literally lose everything. Wall street wants you to forget that.
Funny thing, though... As I look over the funds available to me, I see that the target-year funds charged 20 to 50 TIMES AS MUCH in fees as the index funds but had WORSE returns, proving that those hot-shot fund managers are LYING when they say they can beat the market.
"Crisis"? "Rough patches"? I thought The Party line was "All Is Well".
Seriously, I was reviewing a 401 that I started many years ago, while I was going to college. I don't know how I was able to finish school with minimal debt, AND put money away. But I did it. The only debt we have now is the mortgage. That 401(a) is worth five times what i put into it (interest and employer matching).
Next time you consider halting contributions, or worse, withdrawing from your account, think twice. I never stopped, and never took a dime out. Paid off nicely.
Nope this is all wrong. This is the same old tripe that enables the hedge funds to close out their positions while us "little people" stay the course.
I have a 401. I got creamed in 2000. I stayed the course and my balances came back pretty well, but I vowed not to get sucked in ever again, like everyone else, if I could help it
In 2007, because much of my strategy involved more carefully staying up on the news, I knew something was up (the stock market), and might soon be going down. So I put some ( actually 50%) of my better performing stock funds into the money market fund offered in my employer's plan. As the story goes; in March of 2009 I was lucky enough to be "right" twice, putting the money back into stocks for this marvelous run up we've had.
My point: Learn the rules of business and the market. Read the financial news daily. Read other peoples opinions too. Get the big picture in your head, then make your own rules. Timing the market has made a moderate saver (me), into what looks like a big one. You can do it too. Learn when not to listen to these chumps.
"Real money" WTF is this guy talking about? Is there fake money out there I don't know about?"
Yes and my guess is that your post was meant to be condescending arrogant and lame. Every penny of "QE" is generated without corresponding economy or bound to an asset. In fact, the $700 TRILLION in transaction obligations associated with the Exchanges, or... 100% of what's in YOUR retirement and 401K accounts is based on debt, not economy. You have game tokens, not REAL money.
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