Forgive my ignorance -- 401k tanking

**GREENBACK** · 03-03-2011, 01:30 PM

I think the mistake many make is they look at their accounts in pure dollar figures as opposed to looking at the value of the shares they own(that's what the dollar figure represents). You don't lose any shares as the market goes down and you don't lose any money unless you decide to sell. You stated it correctly, When the value of the market goes down it's an opportunity to buy more shares at a lower price. When it goes back up the lower priced shares you bought are now worth more.

It is pretty simplistic but a lot of people don't get it.

**jpg7n16** · 03-03-2011, 01:39 PM

Those are people who don't know what they're talking about.

Every company in the world would have to be worthless before your 401k would go to a literal $0.

And you're exactly right, you have the same number of shares, only the value went down. While you are buying, you actually want the prices to keep going down. That way you get more ownership for your money. You only want high prices when you sell. And people who are a long way from retirement, will be buying for a long time, and should be happy if prices go down. You're essentially getting a 50% off sale!

It doesn't have to be too complicated.
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But just a note - a 401k is just a type of account. Like saying 'checking account' or 'brokerage account' it's a '401k account.' You put money in the account and then invest that money into some sort of a security. The 401k itself doesn't go up or down in value, the securities you buy do.

Just like a brokerage account: you can buy stocks, bonds, cash, etc. Therefore the riskiness of the brokerage is determined by the type of securities held. The same holds true for 401ks.

So really, the people were trying to say that they sold their stock investments inside the 401k before the prices fell. A person could have their entire 401k invested in cash and been completely unaffected by any of the stock market happenings in 2009. (or the subsequent rebound)

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The theory is the market will go up over time. That's likely to happen, but not guaranteed. It could stay level for 50 years for all anyone knows. No one can predict the future.

but in all likelihood, that's not gonna happen. Companies are still making profits. People are still buying stocks and pushing the price higher.

**bjl584** · 03-04-2011, 05:31 AM

I took full advantage of the market crash. I increased my contribution % when the market tanked and was able to buy low. Today my 401K is worth more than it ever has been.

**solvision** · 03-06-2011, 05:42 PM

Those people didnt pay attention to their plans being much the same as buying shares. Investors buy up big when the market tanks. Smart people would have been contributing more in while it was down (but starting to recover for safety sake).

Im not too sure on the US market, but the Australian market has recovered higher than pre GFC. So anyone who tried to pull their money out in 2009 and "cut their losses" lost big time. Everybody else is back higher than before.

**Scanner** · 03-07-2011, 05:45 AM

So can you ever really lose ALL your money? Or if you have the time to sit it out (and assuming that in the long run the market will increase) wouldn't you eventually get back to where you began and probably better?

Answer to question 1: Yes, you can lose all of your money. Money in a 401(k), unless it is an FDIC insured investment like savings or a CD (usually not - usually in a mutual fund consisting of bonds and stocks), is not guaranteed.

Down on your statement you should be able to see probably something in pretty big "Surgeon General" type of print saying that your principal and interest are not guaranteed.

This whole "house of cards" could come tumbling down like in 1929.

Psychologically though, most people don't think that can happen, that things are different now.

Answer to Question 2: Yes, that is the idea. Here's the rub on that (a little bit). If you are steadily adding, you are probably making gains. The sad thing is that some people "waiting" have been waiting a long time if let's say they made a contribution in 2000 and it's 2010.

I think it's best to consider any investment with a 10 year time horizon now.

**dbstylee** · 03-09-2011, 07:26 AM

might be time to get out of paper assets and into gold

**solvision** · 03-13-2011, 10:45 PM

if you are going to look into metals, make sure you spend some time researching silver, not just gold. It's risen $8 or 29% in the past few months.

**jpg7n16** · 03-14-2011, 06:44 AM

Originally posted by solvision View Post

if you are going to look into metals, make sure you spend some time researching silver, not just gold. It's risen $8 or 29% in the past few months.

For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up.
-Warren Buffett

Forgive my ignorance -- 401k tanking