Apologies if this has been asked and answered elsewhere - I searched and found nothing that addresses this:
Like most, the value of my 401K (from my old company), and my SEP IRA is in the dumper - both accounts have lost significant value, and I even hate to check on them anymore.
Should I assume that if I leave them alone until the economy gets better, that they will once again go up in value, and if things stay good for long enough, they will surpass their old high values and continue to grow?
Is it correct to leave these completely alone, and not reinvest or move them into other investments?
Well, investment advice is best given by someone familiar with your overall economic situation and life plan. However, some general thoughts:
If you are not nearing retirement and have little risk of losing your job then selling out of stocks after they have lost 50% of their value is probably not the best idea (buy high, sell low has never made anyone money). Assuming you are making bi-weekly or monthly contributions (via payroll reduction) then you are already dollar-cost averaging and should continue doing so. It is relatively likely that 5 years from now the overall market will be back at or near its former high (any sooner than that I’m not confident predicting…). You might consider re-balancing your portfolio to get it in line with an appropriate risk profile for you life situation and personal risk tolerance.
If you are nearing retirement, then all of the above goes out the window and you probably should not be as heavily invested in the stock market.
If you moved them into other investments, where would you put them? If your answer is to put your money into something with a higher return, then why weren’t you investing in that vehicle in the first place?
This is just a series of rhetorical questions suggesting that you’re probably better off doing just what Jas09 suggests. Leave your current investments in place, and continue to dollar-cost average into them. Assuming you have somewhat of a horizon yet towards retirement (say 10+ years).
No, I am not looking for specific investment advice - I’m not contributing to the 401K anymore, and I haven’t been contributing to the SEP IRA recently.
I’m just trying to confirm that what I believe is correct: Don’t mess with the investments until skies are sunny again - the values of both will eventually go up again.
We hope they all go back up again… I am seriously thinking about transfering my depleted savings from stodgy ol mutual funds into some specific stocks that (I hope) will zoom back faster than the market as a whole. Healthcare and construction come to mind.
It depends what you are invested in, I suppose. Some investments may never recover their value. For example, imagine if you had invested in Citigroup stock two years ago. Assuming Citigroup survives, the stock price may again rise to previous levels and you might break even eventually. But how long would you have to wait? Will Citigroup trade at those levels again in your lifetime? Who knows.
Looking at the larger picture, there is passive investing and active investing. In passive investing, you do not attempt to try to figure out in what to invest and when to invest. You buy a little bit of many investments, the mix of which depends on your risk tolerance. Then you dollar-cost average by continuing to invest on a regular schedule regardless of what is going on in the markets. In this way, your performance mimics the performance of the broader markets. In the passive-investing case, yes, values will go back up again eventually. The investments taken as a whole should mimic the broader markets and the general economy in some fashion, and in the long run the economy grows. However, it may take a very long time (decades).
If you’re trying to practice active investing, choosing which investments to buy and at what times, then it all depends on your skill in analyzing investments to pick the winning ones at appropriate moments. All bets are off in this case.
Based on past experience, the stock and bond markets are likely to increase over time. They go up, they go down, but over the long term they tend to increase in value.
When they will be back up to where they were in 2006 is anyone’s guess. It may take 30 years. Nobody knows.
Anyone who tells you that they can time the market, any market, and didn’t make a killing over the past year, is just guessing… your guess is as good as theirs.