Mr. Financial Planner – Go Home and Get Your Shine Box!

Last September when I restarted my 401K plan at my company I put 100% of my investment in the Cash Fixed Fund account. This sparked a conversion with a financial planner, who felt he could show me the errors of my way. He didn’t know who he was taking to. After repeating the industry lie, I told him the statistical case on why the market would more likely go down than up and why buy and hold strategies fail in secular bear markets. Instead of having an engaging discussion on the stock market, he shook his head as if I were a child and disengaged.

Well I got laid off a few weeks ago and yesterday I received my 401K statement. The statement lists the returns for all the investment options I had at my disposal. My Cash Fixed Fund earned just a 0.97% return. But that was enough to make it the best performing fund on the list. Every other fund lost money. All the stock funds lost between 8% and 17% during that same time period. All the bond funds lost money too. So did the packaged allocations, including the Conservative option which lost over 3%.

When do you invest in stocks? Go read The Simplest Investing Rule and watch the video. Also follow the link provided by Jim H. in the first comment.



Add yours

  1. ROFL. After reading your simple in vesting rule and this post, I must say, I get your point. I agree that to just blindly buy into the “market” and hold is a silly strategy. But when the truly educated say “buy and hold,” they don’t mean the market, they mean good companies.

    Lest you think this strategy doesn’t work, I have two words for you. Warren Buffet.

    I’m pretty sure that he made giant piles of money from 1964 all the way through 1982. 🙂

  2. Bear markets attack good companies as well.

    Buffet actively manages many of the companies he puts in his investment stable. This is something the average 401K employee can’t do.

    The 401K investor is given a limited number of choices. Most options mirror the market or some index.

  3. Berkshire-Hathaway is actually the ONLY long position I still hold in my portfolio (B shares), but I have mixed feelings about it.

    They are starting to get too large to maintain the same historical growth rates. Plus, I’m not sure how well they will weather the recession. I don’t expect much downside risk, but don’t expect too much upside either.

    There is no other company I’d hold long right now though. Warren is the exception to the rule.

    Regarding 401k plans …some of them are a nightmare. My wife just started a new job and she could choose from maybe 12 equity funds and 3 bond funds (and no cash option).
    – Equities were obviously out.
    – After googling the bond funds I discovered 2 of them had mortgage backed securities in them!
    – The final bond fund was treasuries (which is what we went with). It returned something like 1.27% last year (below inflation), but hey …preservation of capital!! Plus the tax deduction gives you a ~25% return the first year (depending on tax bracket).

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