Retirement Reform Blog

A recent article on Forbes online discusses the benefits of "pensionizing" one's 401(k) as a way to dam up the flood of money leaching from the ever downward-spiraling market:

"Seeing how well most 401(k) plans have done in the past year, the answer still seems to be that for many, added flexibility is no replacement for steady, guaranteed returns. But those days are long gone for many. But that doesn't mean that even in a down market that you can't try to trim your losses. How? Do like the pensions do and re-balance your portfolio ever six months or so, selling off your winners and bumping up your losers. This way you're always selling high and buying when things are cheap. "The only way that the investor is going to be able to respond accordingly is if they are aware of what is happening in their portfolio," says Roseman."

Among other things, it suggests "selling off your winners and bumping up your losers," which is another way to say sell high and buy low.  (Nothing we haven't heard before.)  The problem is that most people, especially in this economy, are still skittish.  Any fluctuation in the market sends people scurrying to their brokers or online accounts to sell anything they have simply to stave off more losses from their badly beaten 401(k)s.  But like anything which has a cyclical pattern, at some point, the cycle rebounds and starts it upward climb again.  To add to the uncertainty, Congressman George Miller (D-MA) has proposed a new bill requiring 401(k) providers to disclose all fees associated with the management of a 401(k).  While knowing what you're paying for is great, it can sometimes create information overload.  More important than knowing the description of each fee associated with one's 401(k) is knowing the bottom line.  After fees (which are inevitable) what is the fund's rate of return?

Tags: 401(k), pensions, retirement, stock market