Author: clannad0901

A Winning 401k Strategy

 

Recently, I was speaking with a Raytheon employee about a simple 401k strategy and the investment options inside his company’s plan.  He mentioned that he only invests in the Northern Stock Index, which is an S&P 500 Index fund.  He’s been doing this for years because he feels that none of the investment options available to him can outperform the index consistently.  This is probably true, but investing only in the S&P 500 doesn’t alleviate his major concern.

 

The reality is that the market will probably experience a deep correction before his retirement.  After the -49% correction in 2000 and another -56% correction in 2008, his concern is quite legitimate.  In May, only 37% of the 100 most widely held mutual funds within 401k’s outperformed the S&P 500; eight of those that did outperform were also index-like funds.  Longer term studies suggest that my friend was correct about most funds not beating the S&P 500.

 

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Welcome to the initial post of 401kmonthly.com! I was recently reading a book about morning routines written by Hal Elrod, where he quoted statistics from the Social Security Administration. The author states that if you were to follow 100 workers throughout the next 40 years of their working careers until retirement:

  • Only 1 will be wealthy,
  • 4 will be financially secure,
  • 5 will continue working, not because they want to, but because they must,
  • 36 will be dead,
  • 54 will be broke and dependent on friends, family and the govt.

This is a pretty dismal breakdown and a sad commentary on the state of the American citizen. The goal of 401kmonthly.com is to help ensure that our readers are well prepared for their ‘next 40 years’ and have the best possible results in their financial lives. (more…)

Does Your Risk Tolerance Follow the Market?
Does Your Risk Tolerance Follow the Market?

According to an investment industry survey, in mid-2008 — when the financial crisis was still developing — 23% of U.S. households were willing to accept substantial or above-average investment risk in order to achieve substantial or above-average returns. The following year, after the stock market hit bottom, the percentage of risk-taking households fell to 19% and did not begin to rise until 2013, the fourth full year of the recovery and a strong year for market performance. Even so, risk-taking remained below the pre-crisis level through 2014 (most recent data available).1

It’s understandable that investors might feel less inclined to take risks when the market is down — after all, no one likes to watch the value of assets dwindle. However, your risk tolerance should be a fundamental component of your investment strategy, based on your own situation rather than market performance.