The traumatic political events of the past year and the downturn of the economy have left many of us ill-at-ease about our 401(k) investments. But J. Michael Scarborough of the Scarborough Group in Annapolis, Md., says that we shouldn't panic.
“Success comes from time in the market, not timing the market,” says Scarborough. “Obviously, recent events have people concerned about the security of their investments, but history has shown us that the markets have survived.” Catastrophic events such as Pearl Harbor, the Cuban Missile Crisis, John F. Kennedy’s assassination and the 1993 World Trade Center bombing, says Scarborough, prompted an average market loss of 8.1 percent. However, the market was up an average of 4.2 percent 22 days after those events, up 6.7 percent after 63 days and up 12.9 percent after 126 days, according to Van Kampen Investments.
Missing out on just a few days in the market could cost 401(k) participants a pretty penny, says Scarborough. For the 10 years ending Sept. 30, 2000, if they had remained fully invested, they would have experienced an annual return of 19.4 percent, whereas missing the best ten days in that 10-year period would have earned them only a 14.7 percent return. Looked at another way, a $10,000 investment over those same 10 years would have reaped $58,890 for the person who remained fully invested. The person who missed 10 days in that same period would earn only $39,413 (source of figures: the Evergreen Funds, based on the S&P 500 index).
“The worst days are the hardest to bear, but it may be worth riding them out,” says Scarborough. There are countless combinations of investments available, but you must take into consideration your comfort level when selecting an investment “If an investor cannot tolerate fluctuations in portfolio value, it may be time to reallocate assets into more conservative investments,” says Scarborough.
For more investment information, visit the Scarborough Group at www.401kadvice.com.
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