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Welcome back to the Statement, Lifehacker’s personal finance newsletter. Have a question? Email email@example.com or respond to this email.
If there’s one truism in investing, it’s that no one can time the stock market. And yet…we persist in trying. Money.com reports:
Bad trading decisions caused the average U.S. investor to lose roughly twice as much as the S&P 500’s decline in 2018, according to a new study from Dalbar, a financial services marketing firm. The S&P retreated 4.38%, while everyday investors lost 9.42% on the year, on average.
Investors on the whole pulled money out of the market in every month in which the S&P yielded positive returns, according to a release from Dalbar. In August – a good month for the market, for example, the S&P returned 3.26%, compared to the average investor’s 1.8%. In October – a bad month for stocks – the S&P fell by 6.84%, while investors lost nearly 8%.
What does this mean? It means retail investors (you + me) reacted negatively to the stock market’s wild swings last year, which led to pulling money out at the wrong time and investing more at the wrong time.
I’ll repeat: You cannot time the market. Wall Street cannot time the market. No one can time the market. It’s easy to get spooked (I, too, have my moments of doubt), but if you’re investing for retirement/the long term the only thing you can do is invest consistently over the long term, buckle in, and leave it alone.
Image: Simon Abrams on Unsplash
Reader Question: How to Improve Your 401(k)
We had a couple of reader questions this week about how to research index funds and potentially improve a rotten 401(k) situation. Stephen M. asks:
Have you done an article talking about how to invest within work 401(k) and matches, mainly how to navigate and research the existing funds in the plan, and create the best diversified portfolio for situation you can with contained options ?
It’s worse than any other investing of course because no matter where I’ve worked it’s been locked to some 20 funds, and nearly all of them will have 1.0 percent expense ratios and be overall just not what I’d pick if I had my choosing. Also some work places would match in company stock instead of actual share bought from one’s investment elections 😵.
I was helping a friend with her finances, and a lot of these workplace 401(k)s will have a default signup that will start at two to four percent and sign up to increase one percent a year, regardless of the match percent work gives.
On top of that, it also signed her up for a actively managed target date plan offered that had a much higher expense ratio than the other index offerings within the plan.
In her case, since she had high int. credit card debt, I found that her one percent a year increase had brought her to six percent when her work only matched up to four percent. It obviously made sense in this case to move it down to four percent at the match level and use the extra two percent to pay off the credit card debt/increase cash flow.
Stephen here has pinpointed one of the most common complaints about workplace 401(k)s: They have limited investment options and can have, depending on where you work, fairly high fees.
If you’ve put in the research and the situation is really dire, then my general advice in this situation would be to contribute up to the employer match (because if you don’t, you’re leaving money on the table), and then branch out from there, outside of your workplace. Which direction you head in will depend on your individual situation, but there are a few paths, which you can read about here.
After this was posted, a different Stephen had this follow-up:
Would you consider 1) writing an overview of the financial tools that are available to look up stocks: Yahoo Finance, Morningstar, etc. 2) key pieces of information that we should be reviewing along with an explanation as to why.
Well Stephen II, I did consider it! It’s pretty easy to do. I walk you through how to research fund offerings here.
And if you’re sitting here wondering how to even know to branch out from your employer 401(k) at all, I break that down here. Basically what you’re looking at is: The fund options (you want index funds), the fees associated with the funds (the lower the expense ratio the better), and any investment minimums.
Image: Fabian Blank on Unsplash
This Week in Review
Here are some other stories from the past week you might enjoy:
And, Lifehacker is hiring a personal finance writer! Here’s some deets:
Lifehacker has an immediate opening for a staff writer specializing in personal finance. This is full-time position with competitive salary and good benefits, working out of Gizmodo Media’s New York City mothership or remotely. You’ll pitch and write stories, star in videos, go on adventures, and bring our audience of tens of millions best-in-class service journalism.
We’re looking for someone with a minimum of two years writing about personal finance for a consumer-focused outlet.
Sound good? Apply!
That’s it for this week. Be sure to check out more articles on Two Cents.