Thursday, January 08, 2009
Today's front page WSJ story Big Slide in 401(k)s Spurs Calls for Change is yet one more milestone in the ongoing "401k Deathwatch", an issue that began simmering shortly after equity markets peaked back in 2007, now apparently coming to a boil in 2009.
Something that I've been wanting to do for a long time now is to put together a historical return graphic for the current decade based on one of those Money Magazine investment portfolio pie charts. You know the ones - 65% U.S. stocks, 15% foreign stocks, etc.
The miserable results are shown below.
Four thousand dollars in eight years is what you'd have to show for your efforts if you'd followed their advice back on the first day of 2001.
This is based on the last asset allocation provided by the nation's most popular personal finance magazine (with a circulation of about two million) from this article back in August for a 35-year old single mom as shown below.
I had to go flipping through about the last five issues as, for some reason, these pie charts don't show up in any of the more recent ones...
Admittedly, if you'd started back in the 1980s or 1990s, you'd still be way ahead, but the results from starting anytime in this decade are pretty pathetic.
If you'd piled in when there was "blood in the streets" back in 2002 or 2003, you could have bested that stable value fund in your 401k plan by a percentage point or two.
Conventional wisdom has failed your typical investor in this decade and no longer can it be legitimately argued that we're just in a little bit of a bad stretch.
Amazingly, nearly everyone continues to think that we are stuck in a 26-year old bull market in stocks rather than being about 8 years into a long-term bear market that is likely to persist until sometime well into the next decade.
Yet, in our "ownership society", where individuals have become responsible for their own retirement planning, people have continued to plow money into the investments recommended by the likes of Money Magazine.
Four thousand dollars in eight years!