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| I've had a true loss in mine, but I've only been working about 10 years. The reason that I have the loss is two-fold:
1) Because the market is lower than it was when i started working, so account for the recent downturn vs. 2000 markets, and:
2) Because I worked for Marsh and McLennan early in my career, so my first 3 or 4 years' worth of contributions had to be in Marsh stock (that's all they'd allow), and while I was there, Marsh stock went from $65 down to $22.50 (we were allowed to diversify around 2004, and about that time, i sold all of mine around $28, some a little lower. My average buy-in over the period was about $42, even after it dipped. Reason I put it in was because I could get a match (roughly) on the first 6%.
Current downturn has erased any gains I ever had - so I'm nowhere close to my cost basis, but I'm only 32 - I have time to recover.
I don't see equity increases in my lifetime like people are used to historically, though. I think that the assumption that you make 10-11% in the stock market is bloated with P/E ratio increase and real GDP growth that will not occur again in my life, and the risk premium over debt is not really going to be much for a long time. Past experience would say that people would allow equity prices to drop now to account for that, but I think the risk premium will be less for a long time because where else are you going to put your money if you want more return than debt?
So, what's my strategy? Keep the balanced portfolio, slightly more conservatism (about 35% debt and 65% equity) and increase the contributions - you can't control the returns, but you can control the contributions. I always get a kick out of folks who save the minimum they need to get a match, never look at what that's going to accumulate to, or boast about how smart they are that they've invested in something that has a better history than everyone else - they'll still be broke because their savings rate wasn't high enough ,and if they don't get the returns they expect, they'll be really broke.
I don't expect to be below cost basis for my lifetime, but you never know what tomorrow brings. | |
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401 and the down turn
