Will It Ever Come Back?

No, this isn’t an advice column for your love life that’s going to tell you, “If you love something, let it go.  If it comes back, blah blah blah…”  Nor is this the story of a man’s hairline, because clearly the answer there is NO!  This is my favorite story of 2011 mixed with a frequently asked question from my 1-on-1 sessions with employees of one of the companies I visit regularly. 

My favorite story of the year is about a dog that came home to Virginia after 8 years of who knows what.  She, an adorable little girl named Petunia, was found nowhere near Virginia.  She was found in Northern California!  No one knows how she got there and where she was for 8 years, but now she is back at home with her family.  As a dog lover, I can only imagine how elated her family was to get the call that Petunia had been found.  The owners had implanted a tiny microchip in her so that if she was ever lost, a veterinarian could scan the chip and find her family and return her home.  Sometimes, technology is amazing!  (Sometimes, though, I want to drop my laptop off of a tall building when it isn’t working the way it should…so I guess it’s a mixed bag w/technology.)  So, how is a story about Petunia related to your financial life?  Great question.

One of the questions I get asked a lot is about 401(k) balances and if they will ever come back (to where they were in 2007).  A lot of people were relatively aggressive with their investments inside their 401(k) plans in the mid-2000’s.  Then, 2008 hit and account balances got crushed!  That caused a lot of people to re-evaluate their risk tolerance and move into money markets, Stable Value Options, bond funds, and other “safer” investments.  Losing money doesn’t feel good!  Unfortunately, people have memories and often measure where they are now vs. where they were at the peak, and for those who went from very aggressive to very conservative, their balances still have not recovered from the devastation that was the 2008 market collapse.  (Cool movie recommendation:  “Margin Call.”  Not action packed, mostly dialogue, but it’s set in the days just before the collapse and deals with how one set of financial traders dealt with their portfolio.) 

Will your 401(k) balance ever come back?  Will it get back to where it was before the collapse?  While I can’t see the future (If I could, I’d hope to see the next $200 Million PowerBall numbers and write this from a beach while sipping an umbrella drink…), if you can avoid letting the markets’ gyrations throw your investment strategy into chaos, you stand a great chance of not only recovering, but of continuing to grow your wealth over time.

I just mentioned the single biggest problem I see…most people don’t have an investment strategy.  When the market is rising and good news is everywhere, they load up on stocks.  After a crash, they get out of stocks and get conservative.  People who do this are emotional investors who don’t have an overall strategy/philosophy.  They end up buying high and selling low.  Wait, isn’t the way to make money to buy low and sell high?  Yep!  There’s a cool way to do that in your 401(k) and I talked about it in my blog about rebalancing features in 401(k) plans.  For you to see your 401(k) balance come back, the 1st step is to figure out what kind of investor you are.  Then, invest in a way that is consistent with your risk profile.  Rebalance periodically.  And, when things are tough (OR when things are awesome), don’t let your emotions take you away from your strategy.  That’s the biggest mistake I’ve seen investors make.  Find your strategy; stick to it, and like Petunia, you should see your 401(k) come back.  Let’s hope that it’s shorter than Petunia’s 8 year journey, though…

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