401K

February 27, 2009 · by Jose Lopez

Probably not too many people would like to talk about how our 401K accounts are doing these days, especially because of the recent stock market crash. I just would like to let you know that we need to learn from that lesson.

We have heard about diversification as a strategy to keep profits or to maintain them and grow, or not to lose too much money. Or probably buy companies with good balance sheets or those that give dividends, etc now and the market will take care of their growth in the future or in the long term. It looks like they worked until last October 2008 when the stock market suffered a big decline, and is not recovering so far. I read that 80% of the fund managers are not doing very well and had losses, probably between 20% – 40% just last year 2008.

I remember I was 70% in cash, 10% in bonds and 20% in stock funds by the beginning of 2008. A friend of mine was more diversified than me and enjoying the nice ride from 2005-2007 while I was moving from stocks to cash little by little during that time.

Probably, I was not so lucky and missed the opportunities in 2006 and 2007 because I was more than 50% in cash at that time. After October, we all know the story. All of the gains from the last 5 years are evaporated.

I have learned that we also need to have the concept of money management in mind to avoid or minimize losses. It is always good to be checking our accounts from time to time. We need to be more knowledgeable about how the stock market works, and make adjustments to our portfolios from time to time.

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