Thursday, December 12, 2013

Tom Keene and "The Adult 401(k)"


Regular reader Rich Sipley passed along this good piece from Bloomberg Editor-At-Large Tom Keene.

With stocks having rallied so strongly this year, and doubled over the past five years, the air is thick with predictions of a coming correction in the next few months.

Perhaps.  Markets don't move in one direction, and the possibility of profit-taking in the near future seems reasonable (I would even suggest likely).

However, as Keene writes, market corrections are part of investing in stocks. For someone saving for retirement, or has a longer time horizon than just a few months, stocks should continue to play an important - if not the only part - of an investor's portfolio.

Here's what Keene wrote:

My Big Idea for 2014 is for me, and perhaps you, to grow up and understand that declines in equity markets happen. Ten percent south is a correction; a drawdown of 18% is a bear market and, that jewel of an index fund in my 401(k) collapsed 55%+ from the nirvana of 2007 to the we're-all-gonna-die of March 2009.

In short, I need to get smarter and less childish about my retirement finances. Next year is The Year of the Adult and adult begins with withstanding some measure of loss in the stock market.

Keene's comments are backed up by the chart of the S&P 500 over the past three decades that I have posted above.

As you can see, the march of the S&P 500 from 163 in December 1983 to nearly 1800 in December 2013 has not always been a straight line.  But for investors that simply held on, their accounts gained ten-fold, not including dividends.

The Year of the Adult 401(k) indeed.