The S&P 500 is up about 22% year-to-date, and up 69% since bottoming at lucky 666 in early March. Being up 22% after being down 40% in 2008, still means the average portfolio is down 27% from the 2007 peak. You may fool yourself into thinking the average 401K balance of $50,000 has recuperated most of its losses, but you’re confusing contribution with performance i.e. going from $50,000 down to $30,000 (40% loss), but contributing $16,500 + a 22% rebound ($6,600 on $30K) = $52,000 does NOT mean you’re back to even!
The tipping point in your 401K, where performance starts outweighing a maximum $16,500 annual contribution is roughly $200,000. Once you have $200,000, the real juice comes from performance where an 8% return equals roughly the maximum contribution you can make every year.
There are two lessons to be learned in 401K land: 1) Contribute the max to your 401K every year, and in 10 years, you will likely have $200,000 given company matches, and performance (even in this past decade) and 2) Once you reach $200,000, you’re going to hurt like no other if you lose 40%, or $80,000 of your portfolio, so diversify! The sword cuts both ways.
IN SEARCH OF LUCK WITH FORESIGHT
I’ve only had a couple big stock hits in my life, and I attribute it all to LUCK. Of course, I also attribute all my loss making ideas to BAD LUCK, and not to poor timing, bad fundamental analysis, and generally not understanding what the hell I’m investing in!
Essentially, I believe with a lot of luck and a little bit of effort we can outperform the markets. Hence, let’s see if the PF community can outperform the S&P 500 with our own randomly unscientific stock picks based on permutations of our own names and blog titles!
THE SAMURAI FUND – CONTRIBUTION GUIDELINES: