401(K) allocations when is it time to move the money around

[Canadian_Dream]

SSGA Stable value is like a cash to most likely you won't find the Ticker. For the rest, all State Street funds should be on morning star. S&P 500:
http://quicktake.morningstar.com/Fun...A&Symbol=SVSPX

Originally Posted by needhelp!

They all have SSGA prefix but they have different names. like Stable value, S&P 500 Index .. so it won't be possible to analyze?

[needhelp!]

We don't have any life cycle funds

Originally Posted by Canadian_Dream

Easiest button would be life cycle funds if your 401K provider offers one. Not the greatest one but the best lazy portfolio !!!

[h1techSlave]

401K is basically a dollar cost averaging scheme. You invest a fixed % of salary every month irrespective of the market conditions.

Originally Posted by hankles

Many financial experts suggest using Dollar Cost Averaging as an effective strategy to overcome market fluctuations. This strategy is particularly effective because it takes away the need for speculation and trying to time the market.

This strategy is essentially nothing but investing a fixed amount of dollars at regular intervals in portfolio of your choice. Over a long period of time, since your fixed dollars have been invested at various highs and lows of market, you have taken out the risk of investing huge sums at highs and on the flip side have lost the opportunity of investing huge sums at lows. At the end, your odds of coming out at the top are much higher than the average speculative trader that resides, to some degree, in almost all of us .

[breddy2000]

Originally Posted by lord_labaku

IMO the whole concept of 401k was a scam created with the collusion of govt. airheads and wall st. thugs. If they can scare you into thinking you need millions when you retire; then they can get all your retirement money to play with & to buy private jets.

100% agree with you.....

No wonder people lost 3 Trillions from their retirement accounts....

[hankles]

Agreed. However the idea is to use this strategy for other investments also.

Originally Posted by h1techSlave

401K is basically a dollar cost averaging scheme. You invest a fixed % of salary every month irrespective of the market conditions.

[man-woman-and-gc]

If you are not planning to retire in the next 10 years, then this is the best time to invest as much as possible in the 401K. You will never be able to buy Stocks or mutual fund this cheap. They same contribution buys more stocks now. That's what I did....i have changed all my allocation to Stock type funds. My Investments are down 15%, but does not matter....i need to look what happens when I retire which is 30 years away. I also moved my existing funds into stock funds as well.

I would suggest keeping away from small cap, just becuase they seem to be the most risky ones among stocks. Other than that, distribute as much as you can in Stocks in your 401K and you would be glad you did that after 5 years. For now, don't even bother looking at the investment performance and losses.

Again, all depends if you truly consider 401K as your retirement income that you will not touch atleast 10 years. If there is any chance that you will take a hardship withdrawal for job loss or other family reasons, make it conservative, infact stay away from stocks.

Just an opinion...but I work in a 401K company and thts what I learnt in my little experience.

[gjoe]

Move to stable funds which has treasury bill and govt bonds to avoid further losses until the market stablizes. Your portfolio looks pretty good with only 25% loss. most of them lost an average of 35% in the last 3 months of 2008.

Originally Posted by needhelp!

Thanks to the recent posts by IV members on trading, I got interested in checking out whats going on with my 401(K).

Compared my total contributions with the current value and looks like I've lost about 25% of what I contributed over the past 8 years (including employer contributions).

I had 54% in growth, 8.5% in aggressive growth, and 37.5% in income distributed among 6 funds (our 401K has about 21 total choices)

IV Financial experts, please advise if there are there any general guidelines to follow on how or when to decide to move funds around among the three categories? Especially in down times like these, is it wise to stay put?

______________________
Just putting the links from Canadian_Dream here so I can find them easily:

[gjoe]

Everytime the experts ask you to buy they mean they are going to sell.
In a bad market like this it is better to move all money to stable funds which will atleast maintian its face value and also add your new credits to the same fund. When you see the market has become stable you can do the same allocation what you have today. This way you will save the 8% to 15% you will loss this year. If you keep your loses close to zero in this market very good.
I see the market will settle when the Dow index comes close to 6500 points. Around that time if you see that the economy is stablizing you can go back to invest in the market. I don't see the economy getting better within the next 24 months.

Originally Posted by Canadian_Dream

This is a classic example of market timing. I respectfully disagree with this approach it is full of peril and one could incur huge losses in this strategy, let me tell you why.

1. Recession is always called after we into it or past it. Beginning of a cyclic downturn is hard to predict because of usual fluctuation of stock market. So the idea that he can sell at 14,000 is a dream scenario and very very few could achieve it. If you can you can make a career in investment.

2. Gains are generally realized using year end re-allocations to bring stock-bond to the right proportion. In that way his gains are locked into bonds during bull cycle.

3. Selling during a downturn is a bad idea, because you could lock your losses by selling and you will not know when to get in. You get trapped into bear trap loosing even more money. On the other hand if you do not sell, your number of "shares" will remain unchanged regardless of the price and you never have to worry about when to get in.

4. The best thing to do during down turn is allocate more to stocks because you are buying low and reduce exposure to bonds because these are expensive. You will recover much faster.

5. No matter how bullish the market is never deviate from bond-stock age allocation because you don't want to get caught in bear market during around target retirement time. So say start with 75-25 (Stock-bond) and end with 20-80 (Stock-Bond) even if there was a greatest bull market around your retirement don't touch the 80, play with the 20 and go aggressive and keep the 80 in annuities or stay in bonds. This is the lesson some retirees have learned during this downturn. There was a prolong bull market since late 80' and now a bear run since 2000.

[Canadian_Dream]

Originally Posted by gjoe

Everytime the experts ask you to buy they mean they are going to sell.

People are recommending what has worked in past 200 years, there is little reason to believe that it will suddenly stop working. The world will continue to grow and well run large and small corporations will continue to deliver the share holder equity and dividends. There will be cyclic downturns they have always been the part of the equation. There is nothing wrong with ultra-conservative investments like stashing the money under the mattress but you have to remember you are playing against the power of compounding and time. Your dividend invested returns are compounded in an equity investments. A 5% equity market return is compounded for the number of years it is invested. If you stood out during early years thinking all this is a scam there is little you can do in later years simply because you have no time left to compound your returns. You can experiment at your own risk.

Originally Posted by gjoe

In a bad market like this it is better to move all money to stable funds which will atleast maintian its face value and also add your new credits to the same fund. When you see the market has become stable you can do the same allocation what you have today. This way you will save the 8% to 15% you will loss this year. If you keep your loses close to zero in this market very good.

All your losses are in paper until you sell, and since we are talking about 401K there is no need to sell until next 20-25 years.. If you sell today you simply locked your losses to feel good in paper. You have to remember that number of stocks are unchanged and it is the price that has changed. Yeah you saved 8 to 15% but lost 40% from the peak. Besides there is no guarantee that 8 to 15% saving that you are talking will materialize it might be that market will start moving higher while you are in the sidelines and instead of saving 8 to 15% you lost these gain plus your original loss. You are falling for classic market timing peril. People have lost everything doing just what you have suggested.

Originally Posted by gjoe

I see the market will settle when the Dow index comes close to 6500 points. Around that time if you see that the economy is stablizing you can go back to invest in the market. I don't see the economy getting better within the next 24 months.

Congratulations, if you can call the bottom and see the recovery you are one of the very few who could do that. So far no one has been consistently able to do it. Also, let's say DOW does go to 6500 as you predicted and you invest and then it goes down to 4000, do you recommend getting out again then ? And how long we play this game until complete principal erosion ?

IMHO: Actively buying and selling is the most dangerous thing to do to your 401K. All you need to do is simply stay in World Diversified Indexes and make your contribution in good times and in bad times. Leave the rest to the compounding. Some corporations win and some will loose, some countries will provide the best gains and some will fizzle but you got nothing to worry because you have invested in them all !!!

[nayekal]

DOW had a series of continuous set backs from second week of January 2009 as we are getting news about quarterly results from several major corporates along with job cuts. But most of these issues were already factored into the kind of value we are seeing for DOW and still havering around 8000 to 8500 points. Even today, we had worst results, but the DOW gained.

Investors are clearly pumping money since they (most of them) believe, that the stimulus package might work out and and they are seeing a trend which looks like DOW is stabilizing. I believe, 8000 points for DOW is more likely the bottom for that. This is a right time to invest.

My opinion is to keep on investing into your 401 K Plan at least as far as your company contributes (that's what I am doing), since this is going to be a long term investment. I went a little bit more aggressive after financial melt down and invested everything in small cap (High Risk Funds) and my 401 K had profit rise up by 7.3% (just for 2008).

I personally believe, that most of us spend a lot and don't save a lot. For people like me, 401 k is a good choice.

[gchopes]

nayekal - How did you acheive a 7.3% return on your 401k in 2008 when everything was down in double digits? Even if you dollar cost averaged on stock mutual funds in 2008, you would still come out negative I would think unless there is something I am missing here. Thanks.

Originally Posted by nayekal

DOW had a series of continuous set backs from second week of January 2009 as we are getting news about quarterly results from several major corporates along with job cuts. But most of these issues were already factored into the kind of value we are seeing for DOW and still havering around 8000 to 8500 points. Even today, we had worst results, but the DOW gained.

Investors are clearly pumping money since they (most of them) believe, that the stimulus package might work out and and they are seeing a trend which looks like DOW is stabilizing. I believe, 8000 points for DOW is more likely the bottom for that. This is a right time to invest.

My opinion is to keep on investing into your 401 K Plan at least as far as your company contributes (that's what I am doing), since this is going to be a long term investment. I went a little bit more aggressive after financial melt down and invested everything in small cap (High Risk Funds) and my 401 K had profit rise up by 7.3% (just for 2008).

I personally believe, that most of us spend a lot and don't save a lot. For people like me, 401 k is a good choice.

[gjoe]

Originally Posted by Canadian_Dream

People are recommending what has worked in past 200 years, there is little reason to believe that it will suddenly stop working. The world will continue to grow and well run large and small corporations will continue to deliver the share holder equity and dividends. There will be cyclic downturns they have always been the part of the equation. There is nothing wrong with ultra-conservative investments like stashing the money under the mattress but you have to remember you are playing against the power of compounding and time. Your dividend invested returns are compounded in an equity investments. A 5% equity market return is compounded for the number of years it is invested. If you stood out during early years thinking all this is a scam there is little you can do in later years simply because you have no time left to compound your returns. You can experiment at your own risk.


All your losses are in paper until you sell, and since we are talking about 401K there is no need to sell until next 20-25 years.. If you sell today you simply locked your losses to feel good in paper. You have to remember that number of stocks are unchanged and it is the price that has changed. Yeah you saved 8 to 15% but lost 40% from the peak. Besides there is no guarantee that 8 to 15% saving that you are talking will materialize it might be that market will start moving higher while you are in the sidelines and instead of saving 8 to 15% you lost these gain plus your original loss. You are falling for classic market timing peril. People have lost everything doing just what you have suggested.



Congratulations, if you can call the bottom and see the recovery you are one of the very few who could do that. So far no one has been consistently able to do it. Also, let's say DOW does go to 6500 as you predicted and you invest and then it goes down to 4000, do you recommend getting out again then ? And how long we play this game until complete principal erosion ?

IMHO: Actively buying and selling is the most dangerous thing to do to your 401K. All you need to do is simply stay in World Diversified Indexes and make your contribution in good times and in bad times. Leave the rest to the compounding. Some corporations win and some will loose, some countries will provide the best gains and some will fizzle but you got nothing to worry because you have invested in them all !!!

For 200yrs dollar cost averaging has worked according to you. But what you fail to understand is averages are only nice on charts and a good marketing tool. For example ff I freeze one half of you at 0C and heat your other half to 100C on an average you should be ok after an hour since the average temp was only 50C.

If I say I save 8% by not investing on funds that lose 8% this year. Let us say both of us invested X amount of money and you lost 8% more than me. For the next year I have 8% more than you to begin with or in other words your fund units are cheaper by 8% than when you bought them. I can buy more of the units you hold and get higher returns if I buy them back when the market is ready to turn around. That is the math behind what I suggested.

The Dow bottom of 6500 is the most optimistic I could make based on the current market and world events. It can go further below 6500 if the situation changes over the next 2 years. One thing is for sure there is no way things are getting better as of now for the market to jump up within the next 18 months.

[nayekal]

Originally Posted by gchopes

nayekal - How did you acheive a 7.3% return on your 401k in 2008 when everything was down in double digits? Even if you dollar cost averaged on stock mutual funds in 2008, you would still come out negative I would think unless there is something I am missing here. Thanks.

I am sorry, I haven't added this earlier. I started my 401K contributions only from March 2008 and that is the first time. Until October, i made few gains,but not much. I increased my 401K 6% to 10% after financial meltdown.

I am surprised too by looking at 7.3% rise, but that is what my profile says.

[Canadian_Dream]

Originally Posted by gjoe

If I say I save 8% by not investing on funds that lose 8% this year.

How would you know which fund is going to loose 8% ? You are performance chasing.

Originally Posted by gjoe

For the next year I have 8% more than you to begin with or in other words your fund units are cheaper by 8% than when you bought them.

What if it goes higher ? Then you buy high. How will you know when is the appropriate time to buy ?

Originally Posted by gjoe

I can buy more of the units you hold and get higher returns if I buy them back when the market is ready to turn around. That is the math behind what I suggested.

There is nothing wrong with you math except you are assuming you will know the market movement well in advance and make your bets, that's a very hard thing to do. Let me ask you something did you sell when S&P was 14,00 and DOW 14,000 ? If you did, then you have a knack for market movements and you can continue doing what you do as long as it works for you. For me buy and hold with cost averaging has worked just fine. I don't believe in predicting market movements and I hardly sound like a broker, a broker will suggest you to actively buy and sell because he gets commission every time you buy and sell. What I am suggesting is stay diversified in passively (no active stock picking, buying and selling) managed world diversified indexed funds and don't look at your 401K portfolio everyday.

[h1techSlave]

This is a continuation of my earlier posting some where on this thread..

Today the S&P 500 has rallied around 3%. My guess is that tomorrow it might go up a little more.

S&P was 805 on Jan 20th and there was a continuous rally for the last 6-7 days. So the next couple of days most likely will see a decline.

Final recommendation: Sell your positions today or tomorrow and buy all cash/bond/fixed income stuff. Watch for S&P 500 to come back to around 830 before you move money in to S&P 500 again.

Disclaimer: The above is just my personal opinion. You can loose money if you follow my advise. If you gain a substantial amount of money, please donate some of that money to IV . IV does not pay me a commission. I do have positions in S&P 500 and am planning to sell it today or tomorrow.