Monday, January 21, 2008

401(k) In the Red

I have to admit, it's a strange experience to log in and see my 401(k) balance squarely in the red. My total portfolio has lost 9.6% of its value sofar this year, with my small-cap funds (13% of my current balance) down about 14%, my index fund (60% of my current balance) down 9.5%, my international funds down about 7% and my fixed income fund (3% of my current balance) up .3%.

Everything is down except for my fixed income fund. If you recall from my 2006 year in review, I historically haven't even had any fixed income allocation in my retirement account. However, I added some in '06, my reasoning being that "I decided to put a small amount of my retirement money in a fixed income fund purely for the sake of diversification so that in the years when equities are in the red (and I know these years are coming!), I will be able to look at my portfolio and see that at least one of my investments is up. The fixed income fund underperformed my stock investments this year, returning 5%."

I guess that time has come! These days, I almost wish I'd put even more into the fixed income fund back then :)

In a way, I am thoroughly entertained by everything going on in the market right now. It was easy to see we were in the midst of a housing bubble, and it was even easier to see that we were in the midst of a credit bubble. I've written about both over the past few years. For people in my age group, these are the second and third bubbles we've had the fortune of observing (the first being tech stocks in the late 1990s). I guess the moral of the story is that if it seems too good to be true (housing prices increasing 20+% every year, tech stocks increasing 50%+ per year, credit being incredibly easy to obtain), stay away from it. If you time it right in the short term you might do well, but you have to get out at the right time. I don't think anyone out there can time markets successfully on a consistent basis, so you're better off not even trying.

By the way, a brief update on Moody's: the stock is sitting right near a 52 week low just under $34 a share. I don't want to jinx it, but I have been picking some up in my trading account. Remember its extremely risky to put money into individual stocks. I'm only investing an amount I could comfortably lose without losing any sleep. MCO reports earnings in the early part of next month and I anticipate some reaction (positive or negative) to the reported earnings as well as the outlook. If you take a step back from the current environment you'll see a company generating good free cash flow and high margins. As long as it survives the current significant threats, I think the company will continue to show great returns and hopefully the market will reward this.

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