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| 401k - Ignorance in the Masses and the 80% |
| Sunday, January 28, 2007 |
PLEASE REMEMBER THIS IS FOR EDUCATIONAL PURPOSES ONLY!
I'm not an investment guru by any means. But I would feel confident in saying that I probably know more about the market than 80% of my peers. In saying that, I recently have been bombarded with questions by the 80% about their personal 401k's. Some of the questions that are usually posed are:
1. What is a 401k?
2. What should I put my money in?
3. How much should I contribute?
4. What is the S&P
5. What do you think about "X" fund?
6. How do you logon to your 401k provider?
7. Once you logon, how do you change from one fund to another?
8. Who is Morningstar?
9. What is a Dividend?
10. Why are they charging me for this fund...its my money?
The list can go on and on. The sad part about it, is that the majority of the 80% have been uninformed, misinformed, or plain lazy about their 401k plans for more than 5 years. Somehow, the 80% have been convinced that their 401k is a pension plan and the market has no effect on there retirement portfolio.
It always amazes me that the 80% put more time in selecting the right refrigerator that they do their fund selections. The 80% can tell you their refrigerator was made in China, but can't tell you what country their fund invests in. The 80% can rattle off the features of different refrigerators, but can't tell you whether their funds are invested in technology, energy, or the bond market. The 80% will hire a termite inspector, appraiser, and home inspector before they plunk down $100,000 on a home, but take the "dart throwing" technique of selecting a fund with their $100,000 vested balance. How can this be! To say the least, it has me confused.
Personally, I think the 80% make their fund selection based upon two things:
1. The previous years performance
2. The "Neato" name of the fund.
Example:
"What about T. Rowe Price Science and Technology?" "Technology is the the wave of the future." "The future is going towards technology" "Look at Bill Gates, he's in technology." "I think I can make a lot of money in technology" "The performance was good last year, its gonna be great this year" "Besides, I have to retire in 5 years".
Well everything was fine until about the middle of April 2006 when PRSCX stepped on a banana peel. Take a look at:
http://finance.yahoo.com/charts#chart4:symbol=prscx;range=2y;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
What about that whole contribution thing? Well, if the company matches 50% up to 6% of of your income...WHAT ARE YOUR WAITING ON...WHAT IS YOUR PROBLEM! That's a 50% return on every dollar you put in. Even if you lose 10% in your fund, are you not still making 40%. This all seems like a no-brainer to me, but many of the 80% rather put their extra money in a savings plan that may lose .5% after factoring in yearly inflation.
I'm not advocating a day-traders strategy to your 401k, besides those turn-around "nasty grams" from your 401k provider will keep you from doing that. What I am saying is try putting as much effort in selecting your funds, as you do the color of your Ipod. Unfortunately, most of the 80% don't even do that.
Later,
Fibonacci
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http://www.primalgreed.com Let's Network!
PLEASE REMEMBER THIS IS FOR EDUCATIONAL PURPOSES ONLY!Labels: 401k, Ignorance |
posted by Fibonacci_Trader @ 8:35 AM   |
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