How to Maximize Your 401k Mutual Fund Returns

When it comes to 401k's there is an overabundance of sad stories. Here is one that at least has a happy ending-and it's getting happier all the time.

Last year (in 2002) a friend of mine-let's call him Jack-phoned and asked if I could help him with his 401k. Jack works for a large company as Senior VP of lending and is financially pretty astute. However, when it came to his 401k mutual fund decisions, he had repeatedly made the same mistake most people were making. As a result, he saw his account drop in value substantially.

At the time we were in the midst of the 2000 bear market, which showed no sign of letting up. Jack had purchased into a Lifestyle fund because someone recommended it. By the time he finally bailed out, it cost him dearly. However, he continued to make the same mistake by reinvesting.

He checked with the 401k representative and subsequently switched to a variety of mutual funds ranging from World Stock to Domestic Hybrids, Large and Small Value as well as Growth. But nothing worked and his portfolio value headed further south.

By the time we met to discuss his 401k Jack was pretty disgusted by the canned advice he had received and the continued losses he was sustaining.

Jack knew that I had pretty much eluded the bear market of 2000 by having sold all of my clients' positions on 10/13/2000. We were safely in our money market accounts weathering out the storm (see my article 'How we eluded the bear in 2000 at http://www.successful-investment.com/articles12.htm.

Thinking about this, Jack could only shake his head because at no point in the market slide had he ever been given what I believe was the right advice. That is, no one suggested that, since we were in a bear market, he might want to step aside and remain in the safety of his money market account. So he stayed invested, hoping against the evidence all around him to find something that was not crashing. That was his mistake, and one shared by many.

The advice that he consistently and continually received was that the market was close to a bottom, stocks "have to" move up from these levels, and, my personal money losing favorite, "the market can't go any lower." That's what people wanted to hear and believe. But my tracking system said otherwise, and I followed its indicators-much to the delight of my clients.

Jack wanted to know how I could help. Looking at his mutual fund choices I realized that they were actually pretty decent, and he had a variety of some 13 funds. So, what was the problem and how could we solve it? In a way, the answer was simple. But people were having to get pretty beat up before they would see it.

My first step was, with Jack's permission, to log on to his 401k web site. Then I started making some adjustments. Since my trend tracking model was still in a Sell mode, I liquidated all of his positions and moved the proceeds into money market. This accomplished one thing right away: He stopped losing money. When you stop moving backward, in relation to everyone else you are moving forward!

Second, as my trend index moved into a Buy mode on April 29, 2003, I researched his funds again. Based on strong momentum figures, I invested in two of his mutual fund choices. The result was very gratifying: the funds I chose moved up around 10% in the two months after my Buy. (Other funds I had tracked and selected for other types of investment programs moved up as much as 26% in that period.)

Jack's been happy ever since. While the 10% appreciation is not as great as I was able to do with assets outside his 401k, it still confirms that the key to successful investing is methodology and discipline. Our disciplined approach relies on objective information. It disregards Wall Street hype designed to perpetuate commission-rich buy now while it's low, or buy and hold strategies.

If you have been in a situation similar to Jack's, or you want to avoid being in one, find an investment advisor who bases his decisions on a measured and objective approach. That will give you the edge no matter whether the market is going up or down and will give you the greatest protection from sad stories with your 401k.

© by Ulli G. Niemann

About The Author

Ulli Niemann is an investment advisor and has written about methodical approaches to investing for over 10 years. He avoided the bear market of 2000 and has helped countless people make better investment decisions. Subscribe to his free newsletter: www.successful-investment.com; ulli@successful-investment.com

---

Stops Make Money

During the day I watch CNBC-TV, the stock market channel.... Read More

Struggling Stocks, Booming Commodities

04/28/2005NASDAQ dropped -12.5% year to date in 2005. S&P500 index... Read More

Understanding a Stocks PEG Ratio

A PEG ratio cannot be used alone but is a... Read More

Dispelling Illusions of the Stock Market

How can you dispel an illusion unless you look directly... Read More

Long Term Investing

In his wonderful book, 'Multiple Streams of Income', best selling... Read More

An Old Proverb for Investing

"If you don't know where you are going, any road... Read More

The Holy Grail (of Investment)

Every year I go to the Money Show in Orlando,... Read More

Where Is The Rabbit?

We need a rabbit!This was a pretty horrible week for... Read More

Emotional Maturity

If you are going to be a winner in the... Read More

How To Be A Winner

Everyone who invests in the stock market wants to be... Read More

Picking Mutual Funds to Outperform the Market

With over 6,000 mutual funds available, it may be tempting... Read More

Fools Gold

The stock market has been in an up trend for... Read More

Boiler Room 7/17/00

On Friday or Saturday evening my wife gets a movie... Read More

Shorting Stocks ? The Basics, Part II of II

After the publication of the first part of this two... Read More

Tips to Finding Other People?s Simple Trading Plans

Did you know you can make money (and a lot... Read More

The Golden Goose is Sick

It is finally catching up with them. The brokerage companies... Read More

Stock Market Insanity

Let's first define insanity. It is doing the same thing... Read More

Stock and Fund Dividends

When is a dividend not a dividend?The latest thing "conservative"... Read More

Patterns

The Law of Chaos is the theory of random unpredictable... Read More

Starbucks Stock is Up

Starbucks earnings are up again and so is their stock... Read More

Trapeze Artist - Swinging with the Stock Market

When we go to the circus we see a trapeze... Read More

Investment Capital Gains

Have you bought any mutual funds this year or late... Read More

Parachute Investing

Ever jumped out of an airplane? It's OK if you... Read More

Why This Bear?

People are constantly asking me why is the stock market... Read More

Advisory News Letters

Several times each month I am solicited by various market... Read More

What Can Model Airplanes Teach You About Trading?

I was devastated!I just couldn't believe it. I was 10... Read More

A Common Misconception about Stock Prices

I cringe every time I hear a novice investor tell... Read More

The Value of Stocks of a Company

The debate rages all over Eastern and Central Europe, in... Read More

Will the Stock Market be Lower in October?

The stock market often closes a week in the middle... Read More

Duct Tape

Did you run out to buy that duct tape yet?... Read More

Enronization

Even if you don't own any of their stock or... Read More

Making a Stock Watch List

I am taking the time to help others learn the... Read More

Trend Trading - Trading Stocks Using Technical Analysis and Swing Trading Strategies

Peter is a professional trader, Paul is not. Peter has... Read More