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Article:
How to Maximize Your 401k Mutual Fund Returns by: Ulli G. Niemann When it comes to 401k's there is an overabundance of sad stories. Here is one that at least has a happy ending'and it's getting happier all the time. Last year (in 2002) a friend of mine'let's call him Jack'phoned and asked if I could help him with his 401k. Jack works for a large company as Senior VP of lending and is financially pretty astute. However, when it came to his 401k mutual fund decisions, he had repeatedly made the same mistake most people were making. As a result, he saw his account drop in value substantially. At the time we were in the midst of the 2000 bear market, which showed no sign of letting up. Jack had purchased into a Lifestyle fund because someone recommended it. By the time he finally bailed out, it cost him dearly. However, he continued to make the same mistake by reinvesting. He checked with the 401k representative and subsequently switched to a variety of mutual funds ranging from World Stock to Domestic Hybrids, Large and Small Value as well as Growth. But nothing worked and his portfolio value headed further south. By the time we met to discuss his 401k Jack was pretty disgusted by the canned advice he had received and the continued losses he was sustaining. Jack knew that I had pretty much eluded the bear market of 2000 by having sold all of my clients' positions on 10/13/2000. We were safely in our money market accounts weathering out the storm (see my article 'How we eluded the bear in 2000 at http://www.successful-investment.com/articles12.htm). Thinking about this, Jack could only shake his head because at no point in the market slide had he ever been given what I believe was the right advice. That is, no one suggested that, since we were in a bear market, he might want to step aside and remain in the safety of his money market account. So he stayed invested, hoping against the evidence all around him to find something that was not crashing. That was his mistake, and one shared by many. The advice that he consistently and continually received was that the market was close to a bottom, stocks 'have to' move up from these levels, and, my personal money losing favorite, 'the market can't go any lower.' That's what people wanted to hear and believe. But my tracking system said otherwise, and I followed its indicators'much to the delight of my clients. Jack wanted to know how I could help. Looking at his mutual fund choices I realized that they were actually pretty decent, and he had a variety of some 13 funds. So, what was the problem and how could we solve it? In a way, the answer was simple. But people were having to get pretty beat up before they would see it. My first step was, with Jack's permission, to log on to his 401k web site. Then I started making some adjustments. Since my trend tracking model was still in a Sell mode, I liquidated all of his positions and moved the proceeds into money market. This accomplished one thing right away: He stopped losing money. When you stop moving backward, in relation to everyone else you are moving forward! Second, as my trend index moved into a Buy mode on April '29
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