Wednesday, February 28, 2007

Today's Bounce Back - 401K

In these volatile market times, let’s take a look at how a diversified 401K portfolio performed today compared to a single investment in a foreign stock fund. The overall market rebounded slightly today from yesterday’s losses (DOW up 0.43%, NASDAQ up 0.34%, and S&P up 0.56%).

As cited in yesterday’s post, if a 401K investor placed all of their funds into a single sector then they would have taken a significant hit. Today an investor in strictly foreign funds such as FIGRX would be up 0.21% after taking a 4.27% loss yesterday. The owner of the moderate 401K portfolio outlined in my earlier post would be up 0.22% today and took a much less significant loss yesterday

FIGRX up 0.21% (10% of portfolio)
FUSVX up 0.60% (25% of portfolio)
PEXMX up 0.36% (20% of portfolio)
SSMVX up 0.44% (10% of portfolio)
FBNDX down 0.27% (25% of portfolio)
FMPXX up 0.014% (10% of portfolio)

Due to having a properly diversified portfolio, the 401K investor not only took a much smaller loss yesterday, but achieved a gain greater then the single foreign fund portfolio today. Despite all the volatility, this investor with a properly allocated portfolio outperformed over a two day period in a very tough market environment. The same principles hold true for the long term outlook for the 401K account, this investor will achieve solid returns while reducing risk.


TakeStocK said...

Greg,..I have my 50% in International but I am not worried about the downturn. I get more units of the same fund for my contribution for this period …It’s like buying GOOG @ 430 today. 401K investment is for long term …this downturn kind of a help if you know you’re fund going to do well in the long run. ..Thoughts?

GregB said...

My thoughts align with your feedback in that you are able to purchase more units of a particular fund using dollar cost averaging after a market re-entrenchment event. However from a MPT perspective having 50% of your funds in international funds is very risky; there have been long periods of market history (meaning decades) with significant international under-performance. I would look to further diversify your holdings over time.