For my 401k, is 0.79 percent return for month of May good?

Question

My company matches 4 percent and i put about 5 percent every pay period. So I know that its "free"money when my company matches but i was wondering, is it possible to go negative in ROR for 401k? I looked at my ROR for april and may and these are the results:

April: 1.22

May: 0.79

Is it just me or is this extremely low? Also because my contribution is completely aggressive(100 percent stocks) since I am in my early 20's and trying ot be very agressive.

Answer 1

As far as I am seeing you are receiving negative ROR (return-on-equity).

Assuming that the figures up there are accurate then the problem is that you have investing in penny stocks (high returns/high risk). Or you could have invested in some very bad (or even good) firms affected in the market by high costs of oil.

In my experience as an investor you should do your stock research on annual reports of many firms. What are their EPS, ROR, etc. and in what industry they are in and how big they are. Investing for retirement should be investing in blue-chip stocks that offer a better return. In an ongoing recession invest in defensive stocks (not to confuse with defense stocks) such as utilities/energy and food (people have to eat and use gas).

100% in stocks is very aggresive but be sure to invest in stocks' price greater than $15. I would highly advise to do some research and probably drop, or stop investing, some stocks that are performing very poorly.

It is good that you are not diversifying; however, research is required for better returns (or any returns at all). As master investor Warren Buffet once said, "Diversifying is protection for the ignorance". Diversifying lessens risk but also lessens returns.

Be sure to also include some income-paying firms (dividends) for constant stream of funds added to your portfolio through DRIP (dividend reinvestment plan). An excellent way is to monitor the performance of all your firms and watch the news and market news for anything that of which it would affect the stock market.

One last piece of advice: your portfolio should perform greater than 6% per year. Why? Inflation!

If you want to diversify, fine, try to invest in some bond funds.

Answer 2

Right now that's not really that horrible.  A lot of people are in the red, especially when investing aggressively as you say you are.  Consider balancing it out a bit more for a while, spread to some mutual funds that seem to be doing well right now.  Or investigate inverse stocks (that are traditionally up when the market is down) and put some money there.

Also, month to month gains/losses aren't really going to show you anything in a 401K.  It's a retirement fund, so let it ride a bit and don't stress too much over it.  Keep investing, and when it hits lows like this try not to pay too much attention to it.  I check mine every few weeks and generally only change things quarterly at most.

Answer 3

Yes, it is possible to be "negative" in the short term.  The whole point of a retirement account is to invest for LONG TERM gain.  Don't stress out about one month's performance.  The fact that your portfolio is "aggressive" means that it will be on the volatile side.

Answer 4

"So I know that its "free"money when my company matches but i was wondering, is it possible to go negative in ROR for 401k?"

Sure, for the short term. If your investments go down more than 9%, generally speaking.

And, you said yourself that you are trying to be aggressive, That means you are taking on a LOT of risk. I suggest at least 10% bonds. It reduces risk and doesn't hurt potential returns.

"Is it just me or is this extremely low?"

It could be much lower. Be well aware of that. And, I can't answer your question because I don't know what you are invested in.

Why not compare your investments to their proper index? Here's how:

http://www.saveyournestegg.com/returns.h...

And, I suggest you read through this:

http://www.saveyournestegg.com/diy.html

Take the risk tolerance quizzes and be sure your asset allocation is in line.

Answer 5

First I would say -- all things being equal -- you are doing the right thing.

The answer to your question is rather technical.

Off the top, it sounds easy:  compare the 5 year (monthly returns are irrelevant) return of you 401(k) to a long dated target retirement fund and the S&P500 index.  If your 401(k) has a similar or better return, you are doing well.  If not, there is a problem with your plan:  either your choices are bad or the funds offered in the plan are poor.

In practice, however, this comparison is complicated by the fact that you have to compare apples to apples.  Your (personal) return has to be adjusted by the money you have put in recently – that is, money that hasn’t been in the 401(k) the full five years.

Answer 6

You need a longer period of time to make that assessment especially when you are agressive (which I think is a good idea for someone of your age)- riskier positions will have more volatility which cannot be meaningfully evaluated in a 2 month increment.