When talking about 401(k) plans today, it’s kind of hard not to get into a discussion about investments. Many people have seen the value of their accounts go down precipitously in the past 12 months. I’ve had one person tell me that all of his retirement planning had gone out the window with this recent market downturn — not only for him personally, but also for his plans to take care of his parents. My own 401(k) balance has lost about 38 percent of its value over the last year.
Of course there are the smug ones who have been in a fixed income, stable value or even-money-market funds over that time. They didn’t gain much over the past few years, but they didn’t lose anything recently, either.
What Should We Do?
I get asked by various people what they ought to do. I’ve even been asked to participate in surveys about what I’m doing with my account and what advice I am giving to others.
My best answer at this point is that I’m going to do…nothing. At least, I plan to do nothing different than what I have been doing. I’m 50ish (OK, 51). My wife is 40-something (don’t go there; it’s one thing for me to divulge my age, something else for me to rat on her). Her family tends to stick around a while, so to be conservative, I have to think in terms of providing for our next 50 years together. What’s happened over the past year equates to about two percent of that time line, so I tend to think of this as a bump in the road. It may be a big bump, but a bump nonetheless.
I’ve consistently allocated my investments with that long term in mind, so I don’t see a reason to do something different now. Hey, I wish — along with everyone else — that I had gone to cash at the top of the market last October. But, I didn’t, so here I am. All I can do is to make sure that what I am doing going forward is the right tactic.
Bargain Opportunities
The funds I invest in have good track records, and will probably produce consistent returns going forward. Is there a possibility that prices will go down again? Sure, but you’ll go nuts if you try to predict that. The good thing is there are lots of bargains out there. Stocks that people bought at $30 last October are now going for $20. It’s a buying opportunity, folks.
Fifty years ago, the Dow was around 500. It closed on November 7th at 8,944 points. Over that 50-year stretch, the Dow increased by 17.9 times, or just under 6 percent per year. So I think it is reasonable to expect that equity investments should continue to produce gains over the next 50 years, although there will be times when it goes down again. And, for my purposes, I am assuming a 6 percent return for this period of time forward.