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What does this downturn mean for young employees' 401ks'

Tuesday, Sept. 16, 2008
 

Up until two months ago, Rick Zampano was losing about $50 a month.

"I was putting money into my 401k and kind of forgetting about it," said Zampano, 26, of Lawrenceville. "I was losing money quarter after quarter, and one day I just had it so I decided to stop investing for a while."

Like many young professionals, Zampano didn't start paying attention until the market took a nose-dive. During the past 12 months, the S&P 500 Index is down almost 22 percent and the Dow Jones Industrials Average is down about 21 percent. Both indices dropped again yesterday -- more than 4 percent.

For young investors, the slumping market could be a good thing, said Donald Belt, chief investment officer for Hefron-Tillitson, a Pittsburgh-based investment firm whose headquarters are Downtown.

"If you've been contributing (to a 401k) this year, you're buying more shares of the funds at lower prices," Belt said. "That improves long-term return potential."

Belt said the loses, although steep, are historically short-lived. He suggested standing pat when it comes to 401k investments, something Megan Walsh, 23, of the South Side understands.

She chalked it up to experience.

"My background helps me, because I've been investing in stocks since I was 14 or 15 years old," said Walsh, who is training to be a financial services associate at Prudential Financial. "Unless there's a major incident with my 401k, I don't worry so much."

The one thing young professionals have over other investors is time, said Jay W. Sukits, an assistant professor of business administration at the University of Pittsburgh Joseph M. Katz School of Business.

"They have a longer investment horizon, so it shouldn't matter if the market is up or down," Sukits said. "If you were to look at charts of the stock market, one of the things you would see is a lot of ups and some downs," said Sukits, who was an investment banker for more than 20 years before teaching at Pitt.

"There's a long-term upward trend."

So when the market goes down, young investors should see a buying opportunity, Sukits said.

"It's like a sale at Macy's," he said. "When something goes on sale, you buy more than one. It's the same thing for less money."

Additional Information:

Tips for the young investor

Max out your 401k contributions. If you don't max out, you're essentially leaving money on the table.

Be aggressive. The higher the risk, the bigger the possible reward.

Diversify. Take advantage of long-term trends.

Do some research. Picking your investment doesn't have to be a crapshoot. Check out how your fund has performed over the long run and remember consistency over a few years is better than a high one-year gain.

Read up. Check out the book 'A Random Walk Down Wall Street' by Burton Malkiel. It's an easy-to-understand book explaining how the market works and investment strategies.

Be patient. Past performance is no indication of future performance.

Source: Jay W. Sukits, assistant professor of business administration, University of Pittsburgh Joseph M. Katz School of Business

 

 

 
 


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