Category : investing behavior

6 Step Blueprint for your 401k (Part 2)

In our previous blog post we covered the first three tips you need to keep in mind when investing your 401k (for those of you that are dead-set on doing your 401k by yourself). In case you missed it, here they are: favor index funds, select the right stock to bond ratio, and diversify. And as promised, here are the final three tips:

4. Rebalance your 401k: In a nutshell, this wonderful tactic keeps your portfolio invested near the original percentages that you selected above in Step #3. Some folks do this manually, some custodians provide you with tools to help you set this up on a regular basis, and some folks hire professionals (like blooom) to do it for them. The beauty of rebalancing is that it trims from your funds that have done well and adds money to funds that haven’t. This may seem counter-intuitive but if you think about it for awhile is starts to make sense. Buy low, sell high. Buy low, sell high. Buy low, sell high…

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If You Don’t Sell You Don’t Lose

When the value of your 401k drops I would be willing to bet that you say “I lost money in my 401k.” If this is the case, let me be the first to correct your vernacular in this instance. The correct way of describing the drop in your 401k value would be to say “My 401k declined in value.” The point I am making here is that your 401k value will fluctuate (and indeed drop) in value from time to time. But for you to LOSE money in your 401k it takes an additional action on your part to cause the loss.

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The Market Zigs…and it Zags

Most of blooom’s clients will admit that they don’t often look at the value of their 401k. But if you have been watching the stock market lately you would have seen that it has dropped a fair amount just in the past few weeks – which in turn will lead your 401k to zig and zag in value.

This is nothing new – it’s just been a while since you’ve seen this happen.

Over the past 3 years, basically since August of 2011 when the US Debt was down-graded, we haven’t seen much of a pullback (market decline). In fact, we have now gone 3+ years without even so much as a 10% pullback in the market. That is very unusual. Not nearly as unusual as our hometown team the Kansas City Royals making the playoffs for the first time in 29 years, but unusual nonetheless! Market pullbacks are not only normal….they are NECESSARY. If it was always a straight ride upward, then everyone would be a stock market investor and there would only be a fraction of the return premium afforded to investors.

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What Investing and Ice Cream Have in Common

I love ice cream.

My wife doesn’t love that I love ice cream, nor does my doctor. But it is my guilty pleasure and I love it.

In fact, if I was to walk into a grocery store and find a half gallon of Breyers’ chocolate ice cream on sale for $2.99 (normally it costs $5.99), I would load up the shopping cart from top to bottom and buy as much of it as I possibly could. Then I’d text my friends, shoot out an email and post a notice on Facebook about the great deal I found. After all, that’s a 50% savings!

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