Over the past three years, while the Standard & Poor's 500 lost almost 15 percent, one group of investors lost less than half that much. Who are these people and what's their secretâ¢
The investors are contributors to 401(k) plans and their winning strategy is diversification.
According to a new study reported in the Wall Street Journal, over a three-year period the investments of 50,000 investors in 401(k) accounts dropped about 6 percent. That looks darn good when compared to the 15 percent lost by the S&P 500.
The 401(k) participants did so well because most of them held some fixed-income investments like bonds and money market funds in their retirement accounts, and their gains partially offset stock market losses.
But the 401(k) investors also excelled as a group because they made regular contributions to their retirement plans even in a declining market. As a result their median account balances rose 1 percent last year.
Here's the bad news: the percentage of workers who saved money in their
401(k) plans in 2002 is at its lowest participation rate since 1991. A study done by Buck Consultants shows that last year only 73 percent of eligible workers saved money in their 401(k)s.
It's not surprising. Money is tight and many investors have lost confidence in the stock market. The losses appearing in our 401(k) statements could wear down anyone's enthusiasm for investing.
If you're one of the ones not putting the maximum amount in your retirement plan, you need to rethink your strategy. Retirement is just getting closer and by the time it comes, your nest egg will need even more money.
Instead of neglecting our 401(k)s, we should be pumping money into them. Now is the time to take advantage of new tax laws that allow us to set aside more than ever.
