Most 401k’s should have a SP 500 Index fund or something close…
My reply is that your advice is about half right, or “something close.”
Try adding the word “INVERSE” to your advice about buying S&P 500 Index funds, as in:
Under these non-normal market conditions, most 401K’s should have some portion of funds allocated to INVERSE S&P 500 funds or ETF’s.
There. Much better. Now people may actually thank you for that advice.
At the top of the market last year 2007, I bought 2X (Yes, that’s 2X leveraged) INVERSE S&P 500 Index funds.
So I not only ignored your advice, I went OPPOSITE your above advice.
That turned out to be a VERY smart move for my 401K. For those wanting specific suggestions, you might try the inverse ETF products from PROSHARES, such as the Ultrashort, ticker “SDS”
I won’t even detail the numerous PUTS I also bought on the various indexes at the peak last year, but you can be sure I’ve made a hell of a lot of money on those PUTS.
If I had instead followed the advice you just gave, and had bought straight S&P 500 index funds at the top of the market last year, that portion of my 401K would now be DOWN 5%.
Now, I imagine you’ll respond and note that the S&P index was up 3.5% for 2007, and you’ll claim your advice remains sound.
Then I’ll respond (now) and remind you that 3.5% was obviously below the actual inflation rate, and also below the interest I earned (5%) last year in my online bank’s savings account!
Under normal economic conditions, your buy-the-S&P index advice is sound advice, but given the current accelerating MESS our economy is in, your advice is not good.
Last comment for anyone reading this thread: I’m NOT suggesting people dump 100% of their 401K into inverse S&P index funds, but I am suggesting allocating say 10% to 25% to inverse index funds, depending on your age and how much risk you can accept for your portfolio. And one more thing, you certainly should sell almost every stock (and bull mutual fund or ETF) you own, and consider selectively shorting some stocks.
