Help! My 401K is going down!

[m3racer]

In my opinion this is not good advice...sticking it all in one fund??? and adding more funds when you get 20K in the first fund???? What ever happened to diversification? As far as your quote of being overdiversified...if the fund categories double up...maybe...but Diversification is the only FREE lunch out there...and unless you're investing in some sort of target-date fund...i wouldn't stick it all on just ONE fund.

I agree with what he said...definitely diversify.
I wouldn't freak out about losing $300 in the stock market. If you don't have that type of risk tolerance than you shouldn't be investing in stocks period.

[safari]

You're investing for the long term. Not 1 year, not 5 years, not 10 years, not even 20 years. There will be periods when the market goes down, but it shouldn't concern you. When you started investing, did you honestly think that your investments will be going up every single year? Just think about it. It actually benefits you that the market is down now because you're just starting investing and you will be able to buy more shares for the same amount. This is called dollar cost averaging. Also, stop checking your 401(k) balance every day. Once you chose your asset allocation, let it work for a year and then see if you need to rebalance your portfolio.

[skydivingchic]

I started working and contributing to a 401k in the summer of 2000 - right as the tech bubble was bursting and then we had the significant decline after the 9/11 attacks. Do you know how long it was before my balance was even a single penny more than the total contribuitions? Two and a half years! Everytime I received a quarterly statement, I would calcuate how much money had been put in vs. the balance. At one point my balance was nearly 30% lower than the total contributions. Guess what I did about it? Nothing - kept on contributing. My balance has now been showing a consistent profit, though recently its been fluctuating like everyone else's.

I agree with the others - quit checking your balance all the time and try to remember that right now you are fulfilling half of the formula for successful investing (i.e. buying low). If you can't sleep at night, then you need to rethink your assest allocation. However, realize that the principal risk you are taking comes with greater potential rewards than say putting the money in a "safe" savings account.

[Scanner]

When you are in 1 fund, you are automatically diversified - you hold shares to probably over 100 stocks.

Adding more diversity did nothing to insulate him in this downturn.

So, why do it?

[disneysteve]

When you are in 1 fund, you are automatically diversified - you hold shares to probably over 100 stocks.

I think it depends on that one fund. If it is diversified across industries, I'd be more inclined to agree with you. If, on the other hand, someone chose to put all their eggs in a one sector basket, even though they'd have some diversity, that would be a very dangerous basket.

Lots of folks hold an S&P 500 fund as their only holding, especially early in their investing lives. Or something like Vanguard Total Stock Market index. Do that, and one fund is just fine.

[Scanner]

And look at the Target funds as someone suggested. . .they are generally 3 whole whopping sectors:

Bulk of it: Domestic
Some of it: International
Bonds

So, that's 3 sectors and you could theoretically hold 1 million dollars in a Target fund and be appropriately diversified.

Hey, I am all for diversification but let's just not get carried away.

As JimØhio says, it's all about risk and reward. You take no risk (diversifying across 8 sectors) you ain't going to get no reward.

[Broken Arrow]

Uh, no offense Scanner, but Domestic and International are technically considered "markets". And hopefully, within those markets, we'll be diversified into various security sectors.... However, I can live with bonds being a sector if you want....