MUTUAL FUND ARTICLES BY ULLI G. NIEMANN
Articles for Free publication in your Newsletter or on your
How to Maximize Your 401k Mutual
By Ulli G. Niemann
When it comes to 401k's there is an overabundance of sad
stories. Here is one that at least has a happy ending-and
it's getting happier all the time.
Last year (in 2002) a friend of mine-let's call him Jack-phoned
and asked if I could help him with his 401k. Jack works for
a large company as Senior VP of lending and is financially
pretty astute. However, when it came to his 401k mutual fund
decisions, he had repeatedly made the same mistake most people
were making. As a result, he saw his account drop in value
At the time we were in the midst of the 2000 bear market,
which showed no sign of letting up. Jack had purchased into
a Lifestyle fund because someone recommended it. By the time
he finally bailed out, it cost him dearly. However, he continued
to make the same mistake by reinvesting.
He checked with the 401k representative and subsequently
switched to a variety of mutual funds ranging from World
Stock to Domestic Hybrids, Large and Small Value as well
as Growth. But nothing worked and his portfolio value headed
By the time we met to discuss his 401k Jack was pretty
disgusted by the canned advice he had received and the continued
losses he was sustaining.
Jack knew that I had pretty much eluded the bear market
of 2000 by having sold all of my clients' positions on 10/13/2000.
We were safely in our money market accounts weathering out
the storm (see my article "How
we eluded the bear in 2000."
Thinking about this, Jack could only shake his head because
at no point in the market slide had he ever been given what
I believe was the right advice. That is, no one suggested
that, since we were in a bear market, he might want to step
aside and remain in the safety of his money market account.
So he stayed invested, hoping against the evidence all around
him to find something that was not crashing. That was his
mistake, and one shared by many.
The advice that he consistently and continually received
was that the market was close to a bottom, stocks "have to" move
up from these levels, and, my personal money losing favorite, "the
market can't go any lower." That's what people wanted to
hear and believe. But my tracking system said otherwise,
and I followed its indicators-much to the delight of my clients.
Jack wanted to know how I could help. Looking at his mutual
fund choices I realized that they were actually pretty decent,
and he had a variety of some 13 funds. So, what was the problem
and how could we solve it? In a way, the answer was simple.
But people were having to get pretty beat up before they
would see it.
My first step was, with Jack's permission, to log on to
his 401k web site. Then I started making some adjustments.
Since my trend tracking model was still in a Sell mode, I
liquidated all of his positions and moved the proceeds into
money market. This accomplished one thing right away: He
stopped losing money. When you stop moving backward, in relation
to everyone else you are moving forward!
Second, as my trend index moved into a Buy mode on April
29, 2003, I researched his funds again. Based on strong momentum
figures, I invested in two of his mutual fund choices. The
result was very gratifying: the funds I chose moved up around
10% in the two months after my Buy. (Other funds I had tracked
and selected for other types of investment programs moved
up as much as 26% in that period.)
Jack's been happy ever since. While the 10% appreciation
is not as great as I was able to do with assets outside his
401k, it still confirms that the key to successful investing
is methodology and discipline. Our disciplined approach relies
on objective information. It disregards Wall Street hype
designed to perpetuate commission-rich buy now while it's
low, or buy and hold strategies.
If you have been in a situation similar to Jack's, or you
want to avoid being in one, find an investment advisor who
bases his decisions on a measured and objective approach.
That will give you the edge no matter whether the market
is going up or down and will give you the greatest protection
from sad stories with your 401k.
© Ulli G. Niemann