401(K) MATH FOR LONG-TERM INVESTORS, A DOWN MARKET CAN BE GOOD TIME TO BALANCE PORTFOLIOS. THIS COULD BE MANY BABY BOOMERS' LAST CHANCE TO BUY SOMETHING CHEAP.Byline: Barbara Correa Staff Writer Many 401(k) investors will be tempted to trash their quarterly financial statements - unread - rather than face the grim facts: The Dow Jones Industrial Average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. posted its biggest September loss since 1937, capping a dismal third quarter. But that would be a mistake, financial planners Financial Planner A qualified investment professional who assists individuals and corporations meet their long-term financial objectives by analyzing the client's status and setting a program to achieve these goals. say, especially for younger investors facing many years of work before retirement. In fact, a down market can be the ultimate buying opportunity for investors who do their homework and set up a balanced portfolio. ``I love down markets,'' said Don Stalker, senior financial adviser in Waddell & Reed's Whittier office. ``If we end the year down, I think that will be the first three consecutive down years ever. This is a pretty rare occurrence and it may be the last chance for the baby boomers See generation X. to buy this cheap.'' Investors around Southern California Southern California, also colloquially known as SoCal, is the southern portion of the U.S. state of California. Centered on the cities of Los Angeles and San Diego, Southern California is home to nearly 24 million people and is the nation's second most populated region, are, for the most part, following that advice. Scott and Laura O'Connell, a young Inland Empire In·land Empire A region of the northwest United States between the Cascade Range and the Rocky Mountains, comprising eastern Washington, eastern Oregon, northern Idaho, and western Montana. Farming, lumbering, and mining are important to the area. couple, are continuing to pour $1,000 a month into four mutual funds so they'll be well-positioned when the market starts to climb. Monica Murphy, a 50-year-old single mother in Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. , is taking the long view and considering increasing her monthly retirement fund contributions. And San Fernando Valley San Fernando Valley Valley, southern California, U.S. Northwest of central Los Angeles, the valley is bounded by the San Gabriel, Santa Susana, and Santa Monica mountains and the Simi Hills. retiree Bob Mandel is channeling inheritance funds back into the market. Mandel, a retired Pitney Bowes  This article or section is written like an .Please help [ rewrite this article] from a neutral point of view. Mark blatant advertising for , using . salesman in Woodland Hills, was eager to invest a good chunk of a $240,000 inheritance he received last month. During a stint as a stockbroker in 1973-74, the last comparable bear market, Mandel swore that if he ever found himself with some extra cash in a down market, he would make the most of it. So, landing in just that situation a few weeks ago, Mandel immediately paid off his condo mortgage and started plotting how to spread out the funds. He also realized he didn't really have the time, expertise or inclination to pick his own stocks. And even though he isn't dependent on returns for his living expenses, Mandel's age and retired status advise fiscal restraint. With the goal of striking a balance between the two, Eileen Freiburger, a certified financial planner Certified Financial Planner (CFP) A person who has passed examinations accredited by the Certified Financial Planner Board of Standards, showing that the person is able to manage a client's banking, estate, insurance, investment, and tax affairs. at El Segundo El Segundo (ĕl sēgŭn`dō), industrial city (1990 pop. 15,223), Los Angeles co., S Calif., on Santa Monica Bay; inc. 1917. Its products include navigation and computer systems, aircraft parts, office machines, telephone apparatus, and planning group On Your Side Inc. allocated Mandel's $100,000 conservatively, while leaving room for gains. About 60 percent went into bond mutual funds Bond mutual fund A mutual fund which primarily or exclusively holds bonds. , which posted average gains of almost 3 percent in the last quarter, about a quarter in stock funds, including 6 percent in an international fund, and the balance in cash. The mix gives Mandel the security to handle future hurdles, like long-term medical care, along with some ``upside potential'' at the same time, Freiburger said. Since Mandel has a guaranteed cash flow of almost $3,000 a month with his Social Security and pension, any return he makes from the $100,000 is icing. For younger workers with fewer assets, the burning questions brought on by the market's slide are whether to boost retirement contributions to make up for losses, and how to reallocate Verb 1. reallocate - allocate, distribute, or apportion anew; "Congressional seats are reapportioned on the basis of census data" reapportion allocate, apportion - distribute according to a plan or set apart for a special purpose; "I am allocating a loaf of investment funds Noun 1. investment funds - money that is invested with an expectation of profit investment assets - anything of material value or usefulness that is owned by a person or company . Murphy, a public health nursing supervisor for Los Angeles County, has seen her retirement account slip from about $40,000 to around $33,000 in the last two quarters. She has a 457 account, which is similar to a 401(k), except that it generally offers fewer investment options. To offset recent losses - the average stock mutual fund fell 17.5 percent in the quarter ended Sept. 30, the second worst performance since 1987 - Murphy would need to boost her current $4,600 annual contribution by more than $500 a month, assuming flat returns, to catch up in a year. That's exactly what she'd like to do but it's impossible with her son starting college next year at a cost of about $30,000 a year. Phillip Cook Phillip Cook (July 31, 1817 - May 21, 1894) was a general in the army of the Confederate States of America and US Representative. July 31, 1817 saw his birth in Twiggs County, Georgia. His parents had moved from Virginia to Georgia. , Murphy's South Bay financial planner, provided a formula laying out Murphy's options. If Murphy's retirement account stands at $40,000 now and she keeps her contributions at the current level, including the county's share, she would have $272,654 in 15 years, assuming a 6 percent rate of return. In an alternative scenario, if Murphy cuts her contributions while her son's in college and resumed later at age 55, she would need to put in $9,000 a year for 11 years, or basically double contributions accumulate the same next egg based on the same rate of return. For people who can't afford to put more away every month, reallocation Noun 1. reallocation - a share that has been allocated again allocation, allotment - a share set aside for a specific purpose 2. reallocation of existing money is something anyone with a retirement fund can do. Instead of playing ostrich ostrich, common name for a large flightless bird (Struthio camelus) of Africa and parts of SW Asia, allied to the rhea, the emu and the extinct moa. It is the largest of living birds; some males reach a height of 8 ft (244 cm) and weigh from 200 to 300 lb and filing quarterly statements away unopened, investors should look at how to make the most of the current climate. Customer service representatives at Fidelity Investments Fidelity Investments is a group of privately held companies in the financial services industry. It is made up by two independent but closely cooperating companies, Fidelity Management and Research Corporation (FMR Co. , the world's largest mutual fund company, can't make recommendations on investments, but they can provide information and make allocation changes over the phone. Smart moves now include moving funds out of large-capitalization mutual funds - like Fidelity's Magellan - into the small- or medium-cap sector, because those smaller funds' earnings are more visible, while the large- caps are looking at an extended earnings credibility problem. Cook said employees should also see if their retirement plans include a guaranteed investment contract Guaranteed investment contract (GIC) A pure investment product in which a life company agrees, for a single premium, to pay at a maturity date the principal amount of a predetermined annual crediting (interest) rate over the life of the investment. option, which is a fixed-income account currently returning 4 percent to 5 percent - more than a money-market with about the same level of security. He also likes real-estate investment trusts (REITs) - basically mutual funds that buy real estate of any type except single-family homes - because they are a good diversifier away from stocks. As for bond mutual funds, a bottoming out may mean it is too late for investors who haven't already shifted savings from stock funds to bond funds. Bonds are expensive right now because interest rates are so low. Shifting now would be selling low and buying high, Cook said. If investors are committed to buying bond funds, however, they should be very short-term maturities of one to three years. For younger investors with shorter-term goals, hanging tough amid the downturn is crucial. Since the spring of 2001, Laura and Scott O'Connell have invested about $18,000 in a taxable trust account of mutual funds, with the aim of upgrading to a bigger house. Since they started, the account has shriveled shriv·el intr. & tr.v. shriv·eled or shriv·elled, shriv·el·ing or shriv·el·ling, shriv·els 1. To become or make shrunken and wrinkled, often by drying: to about $13,000. But every month, the couple still put about 18 percent of their monthly income into the fund and about 7 percent into a 529 college savings fund for daughter Sara. And while they know history calls for holding investment steady during down markets, that is getting harder and harder with each market dip. ``We were hoping to buy a house next year, but it's not looking so good,'' said Laura O'Connell. ``We lost $1,000 in one month. We know you're better off long term if you continually invest. but with Christmas coming up we could use that money for gifts. We're feeling the heat.'' Stay the course, advised Suzanne Christian, the O'Connells' certified financial planner in Claremont. ``We could transfer the mutual funds into a money market fund until the market starts going up,'' she said, adding that she doesn't recommend it. Money taken out of the market the last time it was down this steeply, in 1973-1974, took four years longer to make back returns than money left in the market, Christian said, referring to a study by Lazard Asset Management. ``It's not a matter of being in the market when it goes down,'' Christian said. ``The problem is not being in the market when it goes up.'' Cook echoes the importance of keeping some funds in equities to make sure investors who've been battered don't then miss the boat when the stock market does come roaring back. ``I think we are near the bottom,'' he said. ``I would encourage people not to take money off the equity table.'' The right balance Name: Bob Mandel Home: Woodland Hills Age: 64 Occupation: Retired Fixed income: $4,050/month from pension, Social Security and a part-time job at Sears. Investment: $100,000 in stock and bond mutual funds. Goal: Maintain retirement lifestyle, replace cars annually, travel. How to get there: Allocate conservatively but include some stock funds for upside potential Upside potential The amount by which analysts or investors expect the price of a security may increase. upside potential The potential price or gain that may be expected in a security or in a security average, generally stated as the dollar . Checking the numbers Name: Monica Murphy Home: Los Angeles Age: 50 Occupation: Nurse supervisor Fixed income: $5,750/month salary. Investment: $40,000-$45,000 in a 457 retirement plan. Goal: Retirement at 66; paying for son's college. How to get there: Increase contributions. Adding it all up Name: Laura and Scott O'Connell Home: Upland Age: He's 42; she's 35 Occupation: He's a personal trainer personal trainer person n → (persönlicher) Fitnesstrainer m, (persönliche) Fitnesstrainerin f ; she's a food manufacturer's sales rep. Investments: $13,000 in a trust investment account. Goal: Buy a larger house in the next year; save for daughter's education (she's now 5). How to get there: Stay the course. CAPTION(S): 3 photos, 3 boxes, 2 charts Photo: (1 -- color) Laura and Scott O'Connell (2 -- color) Monica Murphy (3 -- color) Bob Mandel Box: (1) The right balance (see text) (2) Checking the numbers (see text) (3) Adding it all up (see text) Chart: (1) DOW JONES Dow Jones the best known of several U.S. indexes of movements in price on Wall Street. [Am. Hist.: Payton, 202] See : Finance vs. NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on (2) EQUITY FUNDS DECLINE SOURCE: Lipper FundMarket Insight Reports Daily News |
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