The most frequent question I am asked is â€œWhat should I be doing now in my 401(k) account at work?Â What about my brokerage account?â€Â The answer to that question lies where it always has- the facts that we know to be true.
A good way to go broke is to rely on someone who claims they have a crystal ball.Â Â Former Assistant to the US Treasury Secretary Edgar Fiedler once saidÂ â€œâ€¦Those who live by the crystal ball soon learn to eat ground glass.â€Â Truer words were never spoken.Â That is why at Volk and Associates we try our best never to make predictions or assumptions.Â Â And that may be what sets us apart from virtually every other advisor or broker in the industry.Â We believe in the irrefutable Law of Supply and Demand and the guiding hand of relative strength.Â Â It has served us well, as our investment models indicate over the last 11 years.
The beauty of our relative strength approach is two-fold:Â First, its simplicity and second, itâ€™s adaptability not just to market conditions but also to being systematic.Â While no approach to investing can claim complete impartiality, being systematic breeds three things for us that are to our advantage:Â A.)Â Â It keeps our perspective in the present;Â Â B.)Â It eliminates as much emotion as possible; and C.)Â It prevents our winners from being sold too early and keeps us from hanging on to losers.Â Itâ€™s ok to be wrong about a stock or fund investment.Â itâ€™s NOT ok toÂ stayÂ wrong.
As many of you know, we call our approach to investing â€œFact-Based Investingâ€.Â The reasons for this are simple:
- There is so much dis-information coming out of the fire hose of information we call the Internet, combined with directives from the financial media and advisory communities, it is difficult to filter that down into something we can actually take a drink from..
- Even if you do get the information flow down to a trickle, who is to say who is truthful and who is lying? Iâ€™m sure investors in Enron, WorldCom, Global Crossing, etc.,â€¦all thought they and the analysts that followed those companies thought they could trust the information coming from them.
- If the information can be trusted, what makes us think the analysts and money managers selected are any smarter than the other thousands of the same sort of analysts utilizing the same education and methods?Â Do we believe heâ€™s just a better interrogator of the CFOâ€™s of the potential companies to invest in?
- Whatever manager selected, he must make the right market call on the stock.
- Even if the manager IS right, now he has to have the market agree with him, otherwise there will be no demand to push the price higher.
Another favorite quote from Edgar Fiedler:Â Â â€œThe herd instinct among forecasters makes sheep look like independent thinkers.â€
So, back to the question at hand:Â â€œWhat should I be doing now in my 401(k) account at work or in my brokerage accounts?â€
Here are the facts you should consider and steps you should be taking NOW:
- The market started this latest cyclical bull run back in the beginning of October.
- With last weekâ€™s market action, this cyclical bull market may be coming to an end, or it might not be.Â Weâ€™re not going to predict.Â We will only go on what happens for fact.
- Go back to your 401(k) statement and your brokerage account statements from the end of September and mark down the prices of all your investments at the time.
- Now pull up their current prices and figure the percentage returns since that time.
- Do the same for the S&P 500, or better, to the Russell 3000 Index, which is actually a better representation of the overall market.
- Compare each of your investmentsâ€™ returns to the benchmark indexâ€™s return.
- WhicheverÂ under performedÂ the benchmark index you selected will most likely be the biggestÂ under performersÂ in the coming cyclical bear market, but most likely in a big way.Â There was some factor that was making themÂ under performÂ in a bull market.Â Most likely thatÂ hasn’tÂ been resolved.
Or, another alternative:
Let Volk and Associates handle managing your 401(k) for you, either within your 401(k) menu plan of choices or inside a self-directed 401(k) account or rollover.Â We currently follow and make recommendations on dozens of large and small company 401(k) plansâ€™ choices on a weekly basis.
Do you really have time to be consistently doing the research necessary, on a continual basis, to manage your largest asset?Â Would it not be a better use of your time to turn this management over to a professional advisory firm with the track records our models have shown?
Next Time:Â An illustration of how Volk and Associates can pay for its services. Â -or- Why it makes sense use our services.