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The losses of a Money Magazine portfolio

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.
IMAGE 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.
IMAGE 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.
IMAGE 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!

ooo

IMAGE

5 comments:

Anonymous said...

Someone or some group has a lot to answer for it would seem.......

donna said...

Money Magazine was good when it started, but lost its mojo as badly as Cramer. I quit reading it ages and ages ago.

I don't think it matters too much how your were invested, in this economy you lose. There's no safe haven anymore. My answer has been to keep my friends close, and kick my enemies the hell out of office. Too bad more Americans didn't wake up sooner to the Bush/Greenspan disaster plan. Creating them, that is.

Mathlete said...

It used to be the company invested the money with a pension provider who made the investment decisions. Workers received defined benefits, and the company made the contributions. This system has obvious limitations and needed to go away, but why didn't the system shift from defined benefit to defined contribution only? Why did it jump all the way to total individual responsibility? It makes no sense.

doc holiday said...

I have a friend who kept putting his 401K into what was called a Guaranteed Income Fund, which had the lest risk and always paid out at least 6%. He kept putting his money in this for almost twenty years with a company match and along the way, he missed the dotcom bubble and housing bubble and literally, is having the last laugh with his million bucks! People gave him so much crap for not getting stocks and playing the market .... now he has to go buy another house for pennies on the dollar... sad story, huh!

Tim said...

The WSJ story has a good history of the 401k - it was never intended to be what it is.

Those Stable Value Funds (Guaranteed Income Funds) are one of the best things going for 401ks in the years ahead since you won't get much more than a percent or two on money markets.

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