I confess, my 401k portfolio was invested too aggressively in 2008. I’m still down big as the chart shows below: (Ouch, yes it hurt me just to look at it)
Yes, the cumulative rate-of-return from the beginning of 2008 to the end of 2009 is -18.6%. Looks pretty bleak for me huh… So what did I do in 2008-2009 to rectify the problem? I increased my contribution rate to the maximum percentage that I’m allowed to. So as the market was going down, I was hoping to take advantage of a concept call dollar-cost averaging.
What is Dollar-cost averaging? Well if you allocate a constant amount of money for buying a security (stocks, bonds, mutual funds, ETFs… etc) in a measured time period (for example, quarterly), it enables you to buy more shares in a bear market (or less in a bull market) of that security. So when the market is declining, you buy more shares of a security, and that’s what I’ve been banking on. Now that we’ve had a decent run-up in the valuation of the stock market, I would be more hesitant now…
Let’s me give example. Say, I buy $100 dollars worth of a stock (let say BAC) every once a quarter (random purchase date)…
So that means that during the following time periods I bought the following shares:
|Amount||Price of the||Amout of||Cumulative||Value of|
This would be about a 40% return on my investment (If I did this, which I didn’t of course…, but it’s a good example).
So, yes I’m not happy that I’m still down, but taking everything as a whole, I’m doing okay, even if I am still down from my portfolio high at the end of 2007!