HELP! MY 401K IS MELTING!!!
I can’t talk about your 401k, but I can talk about mine. While contributing about $225,000 pre-tax over 15 years, I’ve lost about $100,000 in value. Thus, my 401k has “grown” $125,000 in 15 years, but at a cost of $225,000 pre-tax dollars.
I write all this because I want to state that the 401K losses were a result of two things: laziness for not acting sooner, and misinformation from so-called investment experts.
Specifically: I was too highly invested in corporate stocks. This occurred largely at the recommendation of ‘experts’ that always looked at DOW historical averages and determined future growth is assured.
As I discovered, it’s easy to say the word “diversified”, but actually harder to implement it than you might think.
I mean, if your ‘expert’ recommends 70-90% stock allocation, how is that diversified? In other words, not only should your stock portfolio be diversified - but the INVESTMENTS THEMSELVES should be diversified
What I found was that to remain diversified, you should never be more that 40% invested in stocks at any one time, and that is combined 401k and personal holdings.
Interestingly, I got a few hundred shares in a stock incentive plan separate from my 401K. This put me even more into stocks than I had realized
As of last year, I was like 95% in stocks! As of today, my 401k is only 11.5% in stocks, the 88.5% bonds and cash. Honestly, I have been moving money since early June and losing a lot less in my 401K than those who keep the “recommended” 70-90% stock allocation.
My conclusion is that 401K has too many pluses to pass up: employer match, forced contributions and pre-tax savings.
But, in hindsight, I would also recommend it to be heavy in bonds and cash, especially during this bear market.
If you don’t own real estate at all, you might consider a loan (up to $50,000 without penalty!) from your 401K, and use it for the down payment on something nice and affordable. But, with the real estate markets also in shambles, it is not a given that your purchase today will be a growth opportunity tomorrow.
That being the case, there is no reason not to put some money into foreign currencies and/or commodities. Whether buying euro, gold, oil, fine art, old wines, or even sports memorabilia, there are MANY opportunities beyond stocks and real estate! DON’T BE LAZY and DON’T BELIEVE THE EXPERTS!!!
Tags: 401K, investing advice, Money
