401k Woes!

Hey guys. I was looking for some advice regarding my wife’s 401k. She had about $36K about 5 months ago. Now it’s about $23K. She has about 60% in “Blue Chip” assets classes and 40% in “riskier” stocks. Conventional wisdom says leave it alone and “ride it out”. She’s 34 and has some time left to recover. Part of her wants to take it out and pay the taxes & penalties. Since a 401k offers so little control, and there’s a lack of confidence in the market, is there any advice you seasoned investors can give? Any help is greatly appreciated. Thanx.

Taking it out and paying the taxes would be the worst thing she could do. You say she is 34, which leaves her about 25 years before she needs to start making withdrawals. Conventional wisdom suggests that the market will turn around between now and then and add substantial growth to the portfolio. Remind her this is a long term investment. If she still must do something why not review the actual investments and ensure there isn’t anything in there that is likely to go bankrupt.

Thanx 71tr. I think the worst part is the lack of control over the actual investments. I’ll have to look deeper into their website to see which stocks/funds they’re invested in. I’m not sure if that info is available. Shouldn’t they disclose that if we requested? Thanx again.

You should at least be able to get their top ten holdings with the biggest percentage of the fund invested in those holdings. She’s so young. Try not to panic. My wife’s 33. I’m 32. We just got our IRAs set up a couple years ago b/c of recovering from expensive divorces. We’re down about 35% from just a few months ago, but we’ve got so long until we can use this money that we’re not worried about it. Remember, most of the “herd” is scared right now and selling their stocks/funds and not buying houses because “we may not be at the bottom yet.”
Maybe check your allocations, but I’d stay in the market and be adding to my positions at this point. We’re at the point now where we’ll be adding another fund soon to better diversify our IRAs.

Now is the best time to be increasing your positions. If you do nothing else, make sure you make your maximum 401K contribution before the end of the year so you are buying at a good discount.

If your employer matches, then even more reason to at least make sure your contribution meets the maximum employer match.

Here’s what I see coming…

The FACT that you HAVEN’T pulled your money out YET is a HUGE indicator of sentiment. People are AFRAID…BUT…and this is HUGE…THE MAJORITY HAVEN’T PULLED THE RIP CORD…YET. The redemptions you hear about on TV and the news aren’t the MAJORITY, these people are pulling money out of HEDGE FUNDS, and PRIVATE EQUITY, that’s RICH peoples money… This IS NOT 401K money. THE 401K money will start to come out in the next leg DOWN in this market.

It amazes me that our country is facing a literal DEPRESSION and we have people BUYING STOCKS in companies that HAVE YET to be effected by this MESS. People have SHORT MEMORIES…the same people telling you to BUY NOW, are the same DOPES who told us we would NOT have a recession. :banghead :banghead :banghead

In all likelyhood we will see a much BIGGER move down in the coming weeks, this move will probably be BIGGER and FASTER than ANYTHING we have yet had…AT THIS POINT…“THE WASH OUT”…you (and many others) WILL pull that money out, this will FEED ON ITSELF. The market will dive lower, and at the exact moment NO ONE WANTS TO OWN STOCK, and the majority are OUT…

THAT will be the bottom!!!

This is a very common end result of a asset bubble bursting. The REASON so many people get KILLED in these events is because they BAIL OUT at the point where they feel they can’t take it anymore. Getting OUT is all that matters…price becomes a secondary concern.

There’s a GREAT BOOK on the subject…I read it a few years ago…I believe the title was BOOMS, BUSTS, and MANIAS. You can actually plot a coarse for these events…

We’re not done with this one YET!!!

I say this to you only as a WARNING…If you KNOW ahead of time what may happen you can possibly avoid making a HUGE mistake. Look no further than REAL ESTATE for a SHINING EXAMPLE…When I tell people I buy and sell houses now a days, they look at me like I have 4 heads!!! I LOVE THIS!! I have absolutely NO DOUBT that these same people will be trying to OUTBID each other on these very same homes 10 years from now…

At that point, they all be telling ME…

“You should really be buying real estate, I got killed in the stock market in 2008. I just got back on my feet, NO MORE STOCKS FOR ME!!! REAL ESTATE IS THE ONLY WAY TO GO!!”

And I’ll say what I ALWAYS say…Yea, your probably right…SIGN HERE_____________________________________________________.

I have no doubt this whole mess can get a lot worse. I was just saying, in our case, we have time on our side and feel ok riding this out. I did email USAA and ask them about the possibility of having mutual funds closed (not meaning closed to new investors, but rather having the mutual fund cease to exist). I wanted to know if that would happen as a result of this mess and if we’d be force to just liquidate what was left before a certain date or if we’d just lose everything. They told me they’ve only ever closed two funds so that made me feel better.
The volatility has been very fascinating to watch.

Justin, I think you are exactly right on this. You guy’s have a lot of time on your side. I just threw my opinion out there for some thought.

I will say this though…

401K’s are the biggest scam going. Wait…just wait and see what happens when people actually start trying to RETIRE on this money…

In my opinion most people WILL NOT BE ABLE TO RETIRE…they will continue to work until their dying day.

From my vantage point just about EVERYTHING we are told about money is completely WRONG…We are not educated about money AT ALL in school…

RookieNYC has the best story as far as education goes…I’ll paraphase it for you…basically in his first year in college he was taking a business coarse, he asked the Professor TEACHING the class “HOW MANY BUSINESSES HAVE YOU STARTED?”

The answer???


At that point he learned what ALL self made business people learn…

IT’S ALL ON YOU!!! NO INSTITUTION is going to show you the ropes, you’re going to learn by DOING IT!! He was smart enough to first… ask the question…and second…to realize how important the answer was.

In the classic book “The Richest Man in Babylon” the ruler of that City realizes that TRUE POWER and STABILITY will only come to a country who’s PEOPLE understand wealth and how THEY can create it.

It’s ashame really…these lesson are NOT that hard to learn…What IS hard, is UN-learning all the BS you’ve been told about money your entire life.

We tell our kids to go to College, yet we save .-6% in this country so those kids follow our advice and take on MASSIVE amounts of debt inorder to basically LEARN how to work for someone else…Imagine taking $20,000 (a FRACTION of what most people spend on college) and BUYING a house for your child while they were say 2 to 3 years old??? Your not REALLY buying that house for THEM, your buying it for YOU…That way YOU don’t have to fall into the “I MUST save for my kids college” BS theory. That house could be PAID OFF by the time that kid is 18. While junior was growing to that 18th birthday maybe you could have actually TAUGHT him something about investing in STOCKS!! Maybe you could teach him how buying companies that NO ONE on Wall St. likes TODAY… Can be very profitable TOMORROW.

If you did this right, you child would probably have a better head start than a kid graduating from HARVARD.

Justin…your ALREADY ahead of the curve, your HERE…and your asking the right questions. The KEY for you and your wife is to take almost EVERYTHING you have been taught about money and sh*tcan it.

Check this link out for the REAL 401K story…


A PERFECT example of how WHAT WE ARE TOLD/SOLD is almost all WORTHLESS!!!

Check this link out for the REAL 401K story.....


Wow, that makes for interesting reading but I’m still a big believer in 401k investing. Consider the typical worker does not have the self discipline to save for retirement. The 401k program provides that needed discipline, but does not remove the responsibility of understanding your investments and making wise choices. Next, consider that many employers (from my experience) will match your contribution up to 50% to a max of 3% of your salary.

Suppose you contribute 6% of your salary to a 401k that earns say 7% annually and your employer matches 3%. Next assume you are in the 28% tax bracket. Right away by simply making the choice to contribute to a 401k you are generating a yield on your investment of nearly 85%. You save 28% in tax, you get 50% match from your employer and if the market performs you get a 7% return on your investment. Even if your employer provides no matching funds you still get a 28% return on your investment (in tax savings) before any consideration to market performance. As I see it there are a number of substantial benefits to 401k participation; immediate tax savings, employer match, tax deferred growth, disciplined savings/investment process. Perhaps I’ve been drinking of the koolaid but my quarterly statements and annual tax return substantiate my decision.

I’m not disagreeing with your plan. But I have a BIG issue with a 7% annual return. In reality MOST people will NEVER see 7%. They won’t see it for two VERY REAL reasons…1st…they CHASE last years hot fund and end up buying at the tops. 2nd…they don’t pay attention and let their money SIT in a crappy under-performing fund. A subset of that, is the usual lousy selection of funds most people have available in their plans.

This goes to my original point…People in this country are not TAUGHT what they need to THRIVE. We get taught useless BS in the majority of our pre-college years, and even at the college level the majority of coarses offered don’t teach what is actually needed.

My personal investments have completely blown away any comparable 401K I’ve ever seen and ANYONE could duplicate those results with mostly contrarian investing methods.

I have a deferred comp plan offer by the city I work in. It DOES NOT have a match, but does have the usual host of funds to pick from and is tax deferred. The vast majority of the guy’s I work with who have been contributing for over 10 years or more JUST GOT BACK to even from the dot com bust when the current fall out occured. I contributed $5000 the first year. It didn’t take long to figure out it was a losing proposition, That $5000 has sat for 5 years with NO ADDITIONAL contributions made to it by me. I figured without ME adding to it and placing that money in a well diversified fund I could literally SEE how that money would grow!!!

That $5000 as of LAST winter (not now, but BEFORE the drop) was $4988!!!

At the same time I decided to actively manage an additional $5000 in a separate account that just purchased individual stocks with money that had already been taxed. I have never ADDED to that account. I put in the original $5K and let the stocks I picked do the rest…This was done to show a select group of Firefighters I work with what a scam the deferred comp was. I had THEM pick the mutual funds my $5000 in deferred comp were in, and then I picked individual stocks for the separate $5000 cash account…

Where is THAT cash account now???

In 5 years…that account has grown to $18,982 as of Fridays close. This was accomplished with the purchase and sale of just 3 stocks!!! Goodyear Tire & Rubber, Merck, and Sears Holding.

Don’t worry…We’ll ALL be reading about what a disaster 401K’s are in about 10-15 years when people are actually TRYING to retire with THAT as their primary means of income. At just about the same time, Social Security will be shown for what it really is…


My thoughts on a 401k are similar to fdjake’s. Think about it. The 401k manger takes YOUR money and makes investments with it. They collect their various fees ( which they may or may not disclose). They get paid regardless of what happens to your portfolio. They send you a statement that you can’t read because you were never taught. If you had the financial intelligence to read and understand what they’re doing and why, YOU’D BE DOING IT YOURSELF!! I remember thinking 401k’s were a great idea until I’ve learned a few things about it. First, I think the best TRUE retirement plan was the defined benefit pensions that companies used to offer. I believe it was in the 70’s when they started to dry up. You didn’t have to do anything except work for them for “X” amount of yers and you were paid for LIFE. tHEN THE 401K is born and the govt., companies, and everyone else with “alleged” financial knowledge was advising to hand YOUR money over “X” company/financial advisor and they’ll take care of your retirement needs. My problem with this is that people were/are blindly handing their money over to someone and chants the same phrase “buy for the long term and diversify”. They have no idea if this plan will work or not. I don’t have a 401k because I don’t have any knowledge or control over investing in the stock market. I have some knowledge of real estate. I feel comfortable investing money in that area. I have yet get educated enough about investing in stocks, bonds, etc… to feel comfortable investing money (although I may end up coataling fdjake in Ford stock :smile). I feel that true financial education should be taught in schools and be requirement for high school graduation. It NEEDS to be taught by someone with actual business/investing experience. Sorry for the rant, but I had to get that off my chest…

wow, quite a few strong opinions.

you’ve basically got to understand that companies. will. make. money. that’s what they’re in business to do. whatever happens the companies will adjust and over the long term well-run companies will make profits and grow in value. thus, over the long term stocks represent a safe avenue to growth.

then the question becomes how to pick strong companies. Well, you can spend your life getting the education and research necessary to pick your own, or you can hire a professional. (just like you can spend your life learning the ins and outs of A/C repair, or you can just hire a professional). Pick a fund manager that has a good track record (experience) and go with him. If he starts to screw up, find another one. Just like A/C repairmen, sometimes they find themselves drawn in too many directions, lose focus, and don’t take care of your business. Time to shop around. [low expenses are important. that extra 1% over 25 years really adds up – and what, exactly are you getting for that 1%? Once invested, your money is basically sitting there.]

I’m glad that jake has done so well with three stocks. I hope for his sake that Merck doesn’t get sued (vioxx?) or that Goodyear doesn’t suffer a strike when they renegotiate their union contract next year. Retail isn’t looking too strong right now, either, which would make me nervous about Sears…

The point? Diversify. All your eggs in one basket (or three) is not a safe strategy.

Yes, you can beat the market. It takes education, experience and time. lots of time. every day.

Or you can hire a professional, let him do all that work and reap the benefits.

Stocks have out-performed all other investments in EVERY 10-year period since 1900. Even through the depression. And you can tap into that with a minimum of effort on your part.

And your goal is to buy low and sell high. Stocks are cheap right now. This is a good time to get in to the market.

I haven’t seen anyone mention this yet I don’t think, but you can roll your 401k over into a Traditional IRA. Since they are both pre-tax investments, you won’t have to pay a penalty. You give up the employer contribution, but gain more control.

If it’s me though, it’s hard to turn down free money. I think she’d be ok with a 401k - my parents have done very well with theirs. They are not savvy investors, and don’t move their money around much, but they’ll retire well in the next 10 years. Sometimes that’s all people are looking for.

Well you certainly have a lot more riding on hiring a person/firm to manage your finances than you do with A/C repair or any other professional. I personally don’t think it would take a lifetime to get educated on evaluating/investing in good stock investments. Many financial planners require very little education for certification (if they even get certified). My aunt is a financial planner and she spent less than a month to be “up and runnin” as she puts it. When it comes to an employer sponsored 401k, you have to use the financial manager that they using. You don’t have any control over the actual stocks they invest in. While I think its a good idea to buy and hold solid companies for the long term, I also think its a good idea to take the time to learn how to chose these companies yourself. I also believe its possible to learn the process if you’re willing to put in the time and effort. Just like anything else. If you don’t kow what to do with your money and are unable or unwilling to learn, then I think its a great idea to hire a professional. I appreciate everyone’s input. You’re all very helpful… as usual.Thanx.

For the sake of full disclosure…

ALL 3 of those stocks are LONG GONE!!!

Some of them were sold over 2 years ago. That account is in 100% cash. That money is waiting and ALMOST ready to start work again!!!.

One more point…

401K’s are NOT managed…that money SITS there until YOU call and have it MOVED…So the theory that you can let a PROFESSIONAL handle that money is completely wrong. They won’t MANAGE it for you , but they’ll have absolutelyt NO PROBLEM charging you a management FEE!!!

It all comes down to a very simple principle…


Here’s neat little example…

When George Bush became President (the father, not the idiot) his money was placed in a blind trust. The President supposedly has no idea where that money is being invested…He can pick any Wall St. firm he can get to accept his account. The PROBLEM for George H. was, he DID NOT have a HIGH ENOUGH net worth to QUALIFY for the BEST money management companies on Wall St. :shocked

Don’t worry folks…they cut ole George H. a deal and took his account anyway!!!

The result 4 years later???

A 25% ANNUAL COMPOUNDED RETURN and they STILL handle his money!!!

See…you really do…YOU GET WHAT YOU PAY FOR!!!

You might be better off having that HVAC guy handle your money…from what I’ve seen of 401K money management there is NO POSSIBLE WAY he could do worse!!!

HOLY CRAP! I thought they actually managed the money by moving the money within the “sectors” that you have chosen. So what exactly do they do to justify the fees they charge?? This whole idea make me think that 401k’s are like letting the wolf guard the sheep! The sheep follow because they don’t know any better. :banghead :banghead :banghead

Phlemboy, when you elect to have a portion of your salary deferred (tax free) into a 401k account you are given a menu of investment options. These options are typically mutual funds, some will invest in stocks, some in bonds, some in money market instruments, some in treasury securities etc. It is up to you to select the funds that are appropriate for your investment horizon (years to retirement) and risk tolerance. These funds ARE managed by investment professionals whom have advanced degrees and live, eat and breath this stuff all day long. They are not managed by financial planners who spend a couple of months getting up and running as you put it.

Jake has a point in that YOUR 401k account will not manage itself. While the pro’s are managing the individual mutual funds you must make any necessary changes from time to time in the allocation of your money across these funds. It is up to the individual investor to educate himself and invest his assets wisely.

You obviously want to learn about the equity markets and 401k investing. I might suggest you seek details outside the opinions of a RE forum.

Actually, I’ve learned quite a bit about both RE and the stock market on this forum. If it were’nt for some of the people like Fdjake, Propertmanager and RookieinNYC, I would’nt have realized that I didn’t even know what I didn’t know… Ya’ know? :smile. Looking back at this thread it does lok like I’m bashing 401k’s. That’s not what I intended. I think investing in education before investing money is the best approach regardless of what you invest in. You have to be able to determine if a stock is good on your own. Just as you would for a rental property. If you blindly take the advice of “professionals”, you may or may not end up with a wise investment. We need the financial education to make the decision properly. Thanx again for your input. :cool

Many financial planners require very little education for certification (if they even get certified).

not talking about the Edward Jones flunkie down the street. wouldn’t pay those guys for nothing. in fact, wouldn’t pay anyone who makes a commission - they’re salesmen.

I’m talking about the guys running Fidelity Magellan et al. You don’t get there without some education and experience picking winners.