Category : 401k

Should I flip out market correction

401ks aren’t life or death. BUT they can feel like it. So go with me here for a second…

Imagine…the day has come to an end, you’re exhausted and ready to flop on to the couch for what is left of the evening. You flip on the TV and are instantly bombarded with reporters talking about how the stock market plummeted that day with images of stereotypical floor traders hysterically yelling “sell, sell, SELL out of the market”. Market corrections are happening. Naturally, you frantically grab your computer and log into your 401(k) account to see for yourself and you notice your account balance is down 5% for the day. How are you feeling about that?

Odds are you feel panicked and worried that your retirement is in jeopardy. You aren’t alone in having this feeling. Seeing a big loss on your statements can be nerve-racking. The thing to remember, however, is that a loss on paper is just as arbitrary as thinking you can never drive your car again once your gas tank reaches empty. It’s not the end of the world and if you don’t sell everything in a panic your investments will be back to normal in a matter of time, it just may take some patience.

There are a few important facts about market corrections that you should always keep in mind:

  1. Market corrections are inevitable. No matter how much of a market-timing wizard you believe that you are they can’t be avoided. What goes up must come down, and vice-versa with stock markets.
  2. Since 1928 there have been 26 market corrections, where the market dropped between 10-20%. The average length of each correction is 136 days. While that sounds like a long time it is actually quite brief compared to bull markets where markets grow for 464 days on average with gains of 55.86%. While some market corrections may be far worse than others and may take longer to recover the markets always recover and then some.
  3. Market corrections are beneficial to investors in the long term. If you continue to invest through a market correction you will bring down your average price-per-share getting you a higher number of shares for the same price. (See: What investing and ice cream have in common). This could lead to greater upside potential once markets begin to recover.
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samsung stock galaxy note 7

No, this isn’t another shipment of Samsung Galaxy Note 7 phones.

It’s really a set of flares being deployed by a C-130. But a great lesson can be found here about Samsung stock and investing in general.

On August 19th (with Samsung stock trading at near an all-time high of $23.55) Samsung launched its Galaxy Note 7 with a great amount of fan-fair. It was bigger than previous versions, it was waterproof, it had an iris scanning camera…oh, the excitement!!!

But it didn’t take long to discover it had another feature – it explodes. Five days later the first Note 7 explosion occurred and with it the stock begins to implode. And as of October 11th, 2016 the stock was trading at $19. That’s a 19.3% loss in value in less than two months. Poof.

Here’s the deal, somewhere in America there was probably a 401k participant that worked at Samsung that decided to “load up” on Samsung stock. And why not? At the time Samsung had one of the greatest competitors to the iPhone, probably had some nice fundamentals and promising future.

This 401k behavior is a nationwide problem. In fact, Proctor & Gamble has 37.7% of its $3.1 Billion Savings Plan allocated to company stock, the $12.9 billion Honeywell International Inc. Savings and Ownership Plan has 29.8% in company stock, the $19 billion Chevron Corp. Employee Savings Investment Plan has and astounding 46.7% in company stock and General Electric Co.’s $27.5 billion GE Retirement Savings Plan contains 35.5% in GE stock. Data for all of these plans are for the year ended Dec. 31, 2014.

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There is no check engine light for your retirement account

When is the last time you opened the hood of your car and looked at your engine?

If you are like me the car would need to be billowing smoke, dead, or squealing like a cat got caught in the fan belt. And I’m being honest, even when I do look, it’s a mysterious and complicated set of cables and parts that I just don’t really understand.

I imagine most other Americans feel the same way. And when it comes to the average individual dealing with their 401k options and making decisions they’re often staring at a set of complicated and mysterious set of choices that are just plain hard to understand.

Unfortunately, 401k investors are perfectly fine making “educated guesses” where to place their hard earned money, but none of us would guess at where the oil goes and then blindly start filling up different parts of the engine.

So why is it that hard working Americans are more likely to get help changing their oil than managing their investments?

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Technology Provides the Next Frontier in 401k plans

Did you know that of the 20,000+ individual 401(k) accounts that blooom has analyzed, over 80% were invested incorrectly? Yea, that’s right…over 16,000 people didn’t have the right investments in their account.

What that tells us is that the current system that employers have in place for plan participants is not working. Technology now has provided a solution to this problem through online investment management services, commonly referred to as Robo-Advisors, such as blooom.

Blooom is a low-cost, Registered Investment Advisory online service created to help improve the way average Americans manage their 401(k) retirement plans. In just five minutes, the blooom assesses a client’s 401(k), including hidden fees, from start to finish and provides ongoing professional management for as little as $5/month.

It is predicted that by 2020 the amount of money personal investors will invest through the use of technology will grow by 68%. In this Podcast blooom’s CEO, Chris Costello, talks about how technology is revolutionizing the 401(k) space and how important it is for employers to be at the forefront of providing this latest employee benefit to their participants.

Listen to the 401(k)Fridays podcast featuring blooom’s Chris Costello here.

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Why should 401k Advisors care about financial wellness?

Financial wellness…What exactly is it and what’s all the buzz about anyway? For starters, here’s a quick overview, along with three reasons why plan level advisors really should start taking financial wellness seriously.

Financial wellness is the state of personal knowledge and access to resources to plan for and help manage fundamental financial events, which everyone is likely to face – budgeting, saving, transacting, borrowing, protecting, and investing. The typical talking points about financial wellness revolve around how financial instability affects employees and employers – lost productivity, increased work comp, medical and disability claims, theft, turnover, etc. Important stuff?! Advisors SHOULD care, but so far it doesn’t seem like advisors are fully on board. Maybe it’s simply due to the fact that nobody’s honestly discussed how it affects your piece of the pie.

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