There is almost no limit to the ability of investors to ignore the lessons of the past. This cost them dearly last year. Here are six of the most important of these lessons for investors:
1) Beware of market forecasts, even by experts. As 2008 began, strategists from Wall Street’s 12 major firms forecast the end-of-the-year closing level and earnings of the Standard and Poor’s 500 Stock Index. On average, the forecast was for a year-end price of 1,640 and earnings of $97. There was remarkably little disparity of opinion among these sages.
Reality: the S&P closed the year at 903, with reported earnings estimated at $50.
Strategists aren’t always wrong. But they have been consistent, betting year after year that the market will rise, usually by about 10%. Thus, they got it about right in 2004, 2006 and 2007, but also totally missed the market declines in 2000, 2001 and 2002, and vastly underestimated the resurgence in 2003.
Ignore the forecasts of inevitably bullish strategists. Bearish strategists on Wall Street’s payroll don’t survive for long.
Read the rest of John Bogle’s column here.
Matt / Google+
I am a 29 year old that recently switched jobs. I was wondering what I should do with my former employer’s 401(k)? Should I roll over into an IRA, and what are the benefits of rolling over?
- William, Pennsylvania
In nearly every circumstance I would recommend rolling over an old 401(k) into an individual retirement account (IRA). The reason being is because you have a lot more control over where you invest your money. Most 401(k)’s limit the number of investment options a plan participant can put their money in. Also, the mutual funds that many 401(k) plans offer are often loaded with high expense ratios and other hidden costs. As an individual investor, you have practically an unlimited amount of options. Unless your former employer’s 401(k) offers you attractive options that are not available to you outside of the plan, I would recommend rolling it over into an IRA at Vanguard (www.vanguard.com) or Fidelity (www.fidelity.com). Vanguard offers low-cost index mutual funds that outperform many of its actively managed peers. Fidelity offers a variety of mutual funds including similar low-cost index fund and it also has a brokerage where an investor can purchase individual stocks. As an added bonus, many mutual fund companies will handle the 401(k) rollover for you at no charge.
Matt / Google+