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10,000 anxieties
When your retirement account statement comes in the mail, what do you do with it?
A. Rip it open with unbridled optimism
B. Open it very slowly with one eye half-open
C. Toss it unopened into a boiling pot of acid
D. File it away as a memento to share with your grandchildren who ask about the Great Recession.
For a while, I stopped opening mine, but now that the Dow is back above 10,000, I can't help but want to take a peek.
One of our editors told me her friends have started asking about their 401 (k)s again. For a while, no one dared talk about it. Now, they say: "Hey, you work at Marketplace. What should I do? WHAT SHOULD I DO???"
By "do," I assume they mean, "Am I about to be royally screwed again?"
The fear is real and understandable. Here's a Wall Street Journal assessment of the stock market's rally:
Yet many investors are uneasy. For these people, the market is taking on a "greater fool" feel, meaning that many don't really believe in the investments they are making. They are banking on being able to sell to a "greater fool" later...
"There still is a lot of trepidation that this thing could reverse itself fairly quickly," Mr. Yardeni says, adding that he shares the concerns. So why are they taking the risk? "They can't afford to miss the bull market."
Now, if you're in it for the long haul, there may not be as much to worry about (although I believe I've heard that one too many times). Still, many retirement accounts have rebounded fairly quickly. From another Journal story:
"If you were Rip Van Winkle and had fallen asleep for a year, you wouldn't have known we had a crisis--and you would have saved a lot of sleepless nights," says Alexandra Armstrong, a Washington, D.C., financial planner.
Stephen Utkus, a principal with the Vanguard Center for Retirement Research, took a look at Vanguard's 3.5 million 401(k) and other retirement-savings accounts and found that 60% of those who had accounts on Sept. 30, 2007, showed balances that were flat or up this year compared with two years ago.
To be sure, the results are quite uneven--and they don't mean that investors have recovered all of their principal. Many people are still showing substantial losses, especially if they were heavily invested in stocks or have stopped adding to their accounts, or both.
Tonight on Marketplace, we'll explore the emotions of Dow 10,000. In the meantime, are you back in the market? How are you coping?
Or rather, what I meant to ask is: WHAT SHOULD I DO???
This recession has taught me two things.
First, I don't trust mutual funds anymore. I don't know what they are investing in, who is managing them or how much in fees they are taking from my account. It is most unfortunate that most 401k accounts do not allow you to invest in stock and only a limited number of funds.
The second thing it has taught me is to trade my investments in my retirement account. There are no tax consequences so you should research the companies and industries and trade in the mutual funds for good company stocks that pay dividends.
Of course, i knew these things all along, I just forgot them while reading too much advice on what I should do.
I agree, partially. Mutual funds do tell you what they invest in and what the fees are. It's buried in the prospectuses.
OTOH, they don't tell you what their strategies are and they switch gears unexpectedly. I look at funds and see what they're invested in and use that to judge if the fund manager is thinking kind of like I am. If he/she is, then maybe I buy some shares of the fund.
Except, often, I'll look at it again 6 or 12 months later when they sold something I thought they were going to hold I'm like: "WTF were you thinking? Why did you do THAT?!" Then I'm PO'ed.
Also, too many funds insist on keeping a certain number of recognizeable names in their top holdings because they think that's the only thing that people will buy but that's not always where the best investment is. Try finding a computer fund without 10% Intel or 10% Apple in it. Try finding an energy fund who's top holding isn't Exxon-Mobil.
