I kept hearing the markets were doing well the past few weeks so I took a deep breath, crossed my fingers and logged into my 401(k) plan. What a surprise! My account is up over 13% so far for the year! If this were a movie you’d see the sun pushing the clouds away and happy little birds chirping around me as the world is a great place to be.
It wasn’t like this last year.
Last year I lost about 30% in my 401(k) portfolio. Ouch! The reality is I need my portfolio to go up 60% to get back where I started.
So what now? Nothing. It’s a number is all. I like that my 401(k) has gone up but it’s not something for me to be too concerned with right now.
Why am I not concerned about my 401(k)?
- I’m investing for the long haul. I’m not so worried about how my 401(k) does year to year. I’m more concerned with how it does over 10, 15, 20, 35 years. Even though my portfolio did bad last year, one year is too small a sample to be worried about.
- My funds are diversified. I’ve made sure to spread my investing across many investing types including large/mid/small cap stocks, growth and value stocks, foreign stocks, and cash and bonds funds. This way when one sector does bad I have other sectors that can help balance it out.
- I keep my portfolio balanced. I set up my account (my company’s 401(k) plan is with Fidelity) to notify me when my allocation for any fund is off by 5%. Then I go in and re-allocate the funds to bring it back to my target percentages. This helps me lock the gains in and I buy low on other funds.
- I get a company match. My company matches up to 4% on my 5% contribution. Quick math tells me that’s an 80% return on my investment. When my portfolio is down I remind myself that a lot of that is company match money (a little mind hack to help me sleep in down economies).
It’s nice to know how your 401(k) is doing. But don’t let it get you emotional whether it’s good or bad. A 401(k) is long-term investing to help you in retirement. Most of us have a lot of years before we’ll need the money. Just make sure you are diversified and you re-allocate your portfolio when your target percentages are off. As you get closer to retirement age you’ll also want to reconsider how you diversify.
How is your 401(k) doing this year? How do you feel about it?
A great book I read that talks about retirement investing is the Boglehead’s Guide to Investing which can be found on Amazon.
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I have a Roth IRA. But it is doing better this year than it was last year. Actually, I did the happy dance last year as my IRA bought more shares for the same amount of money. Now that the market is showing improvement, having more shares is working to my advantage. And, since my timeframe is 20-25 years, I expect that I’ll have a couple more of these down and up cycles to go through, offering me the chance to buy on sale again…
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Exactly! As long as a person was diversified and kept investing they were getting more bang for their buck. When stocks go up the portfolio blossoms!
I don’t mind seeing that the entire market is down from the last couple years – that just means you are buying more shares through dollar cost averaging. I’ll be more concerned about 30 years from now when I will need to start making withdrawals!
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And even 30 years from now your portfolio will probably look different as you might be more invested in bonds and cash equivalents. So still no big concern.
Actually most, if they are financially diversified will see that their retirement accounts are up for the year. I rearranged my portfolio earlier this year to follow the Spencer Sherman’s Rainbow Portfolio using etfs in one of my accounts and since than that account is up over 30% on average, with a few emerging market etfs up as much as 40%. No sweat, I hardly ever look at the account now a days. There was a time few years ago when I used to be glued to the stock tickers.
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Good times or bad, if your portfolio is diversified and you re-allocate you shouldn’t have to worry.
Last time I checked, my account was up around 13%. I’m still down over $15k from my the good days of when my account was increasing each month.
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Yeah, I’m still down a lot too but it’s nice to see it moving up again!
You were among the lucky few that apparently didn’t panic and move your portfolio into target dated mutual funds. These unproven and even suspect (no real track record to speak of) were the choice move for those that suddenly realized that they maybe should have been keeping at least on eye on what they were investing in. They didn’t and when the markets and the economy made the news – repeatedly – they switched.
Had they just held fast, employed the dollar cost averaging investment strategy that 401(k)s use, they too would have seen those kinds of gains.
Now I fear that we will have an awful lot of underinvested folks twenty years from now wondering why they took so little risk.
I did re-adjust some in the past year but it was more of an allocation I would have done in any economic environment. I’m not sure target-dated funds are so bad. Some people are truly perplexed about the market and they might benefit from a target-dated fund. What’s bad is when people panic and pull all of their stocks funds into bond/cash funds. For them they sold low and bought high.
Mine are up a bit, too. The wobble in the Vanguard Wellington (Roth) is to the point where I haven’t LOST any money (value is no longer lower than inputs), but it has a ways to go to where I’m MAKING money again.
Same deal on the 401K – I also did the mind game of “it’s not MY money that’s gone missing – it’s the gains and the match.”
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