401k question...

[wnied]

In a down market, is it best to allocate your funds into a conservative fund? Or Growth funds?

Just curious...as I would like to make money when the market starts to rise.
~wnied~

 

[wyvrn]

Everyone has a different opinion.

We moved all future contributions into bonds. We get 100% match on the 401K up to 6%. So with the 100% match and 4% return on bonds, we profit 104% on contributions. It is safe, and a nice return.

I also did not move existing balance to bonds because I have this crazy idea the stock market will recover. But I may lose that entire portion of the 401K before the economy recovers.

For a specific type of fund, value might be the way to go. Stocks of good companies are artificially depressed. I see a value fund as less gambling than a growth fund, but they are all speculation.

 

[edro]

The most common mistake in all of investing is moving money to conservative funds when times are bad and moving to aggressive funds when times are good.

 

[tefleming]

Originally posted by: edro
The most common mistake in all of investing is moving money to conservative funds when times are bad and moving to aggressive funds when times are good.

Another common mistake is not diversifying.

Put some in growth and some in income.

 

[zebano]

I rebalanced my distribution back to their normal levels (I do this annually anyway) but other than that I haven't changed anything. I'm 28 so I expect the stock market to recover before I need that money.

 

[DeadByDawn]

If you are a long ways off from retirement I'd be buying growth. Historically most of the "conservative" investments are expensive right now. Buy low sell high.

 

[speg]

Growth.

 

[Drakkon]

Consider also how long you will be staying at company offering the 401k. If it will not be long enough for "growth" to grow (i.e. 5 years) then stick with "conservative"

 

[maddogchen]

historically small cap and value have performed better than large cap and growth

 

[alkemyst]

simple, yet complex answer:

it's best to put it into whatever is going to be worth the most when you need to cash out.

 

[wyvrn]

Originally posted by: edro
The most common mistake in all of investing is moving money to conservative funds when times are bad and moving to aggressive funds when times are good.

Not true. A lot of economists will tell you that preservation of capital often is worth more than waiting for market upturns.

Dollar cost average, diversification .. those are investing terms designed to keep you putting more money into the market. But if you analyze them, you realize that just preserving a positive return over the long run can be better.

edit: especially in a market like now where we will have multiple bottoms until the bull market returns.

 

[KingGheedora]

Originally posted by: wyvrn

Originally posted by: edro
The most common mistake in all of investing is moving money to conservative funds when times are bad and moving to aggressive funds when times are good.

Not true. A lot of economists will tell you that preservation of capital often is worth more than waiting for market upturns.

Dollar cost average, diversification .. those are investing terms designed to keep you putting more money into the market. But if you analyze them, you realize that just preserving a positive return over the long run can be better.

edit: especially in a market like now where we will have multiple bottoms until the bull market returns.

Please elaborate.

 

[StageLeft]

Originally posted by: edro
The most common mistake in all of investing is moving money to conservative funds when times are bad and moving to aggressive funds when times are good.

That certainly has been the most common mistake. If things have meaningfully changed now, and in some ways they have, this may not necessarily be the case going forward. This is a horrendous market and the economy is substantially changed from its past. If you look at, say, Japan, their stock market has been basically a losing venture for _decades_ now, from a long term growth perspective of one's personal investments.

Please elaborate.

Perhaps I can for him.
If Bob started investing, let's go back 12 years (since that's where the market is now), in 1997 100% in the stock market, today he'd have less money than when he started, when adjusted for inflation. During this time he saw boons and busts.

If Jim started investing in 1997 with the same amount and had it in corporate and treasury bonds he would have had a decent return on investment now.

I asked this question on another thread yesterday and here's the answer: go back to 1896 when the DOW was created. Its growth from then until where the stock market is now, is about 4%--BEFORE inflation. We can throw on another 2% or so for average dividends and the stock market has in fact returned a paltry 6% over its life before inflation, and broken many hearts doing so. Now, it may be disingenuous to base its end point on where we are now instead of where we were at 14k, but nobody with a brain actually now believes 14k was a fair value. The stock market has historical had a certain P/E ratio over its life and we basically there now; by this I mean the stock market is closely now valued where it should be, not the 14k fantasy market it used to be.

So is 6%, or 7% at the most before inflation that great? Not really. It's beaten bonds but not by a ton.

In my case I'm still going 100% into stocks with my 401k contributions, but I've also moved some into a bond index recently, in part as an emergency backup if the sh*t really hits the fan.

This recession is burning a lot of people, big and large. The stock market is not going to hit 14k for years.

The rules have changed and so has the economy. It's anybody's guess where we're going. Chances are they are still the ticket, but it's harder to say that with confidence than in the past.

 

[wnied]

Well I want to cash out in five years. Sooo...conservative?

 

[Christobevii3]

Originally posted by: DeadByDawn
If you are a long ways off from retirement I'd be buying growth. Historically most of the "conservative" investments are expensive right now. Buy low sell high.

Non investment grade bond funds are actually trading at near company failure levels. They are trading around 12-15% yield, its nuts. Even ATT's stuff wasn't too far from 10% not long ago.

 

[Mr Pickles]

NO NO NO ITS COOL MY GF PLAYS THE POWERBALL... WERE SET.