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Author: VReinoso Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Transforming my 401k from Wise to Foolish Date: 9/29/1998 12:09 PM
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My employer (like most) gave me very limited options on my 401k - all mutual funds managed by the Wise. With some reservation but not sure I had any other choice, I chose some funds and maxed my contribution.

The good news was I maxed the contributions, the bad news was that I had to turn it over to the Wise to manage -- the fund options included no index funds. Now as the year comes to a close, my employer is considering altering the plan to give us the option to self-manage our 401k.

As fate would have it, the Wise managers of the funds I selected have lost me about 10% of my contributions. The question is should I lock in the loss and transfer the remaining amount to the self-managed option which would allow me to invest these and future contributions Foolishly or do I leave it there until I recoup my losses (who knows when?!) before transferring it to the self-managed account? I have, of course, decided to funnel all future contributions to the self-managed option.

In Foolish principal, I know I must take a long term view, but should I do that as well with money already in the clutches of the Wise?
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5726 of 75335
Subject: Re: Transforming my 401k from Wise to Foolish Date: 9/29/1998 5:35 PM
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Greetings, Vreinoso, and welcome. You wrote:

My employer (like most) gave me very limited options on my 401k - all mutual funds managed by the Wise. With some reservation but not sure I had any other choice, I chose some funds and maxed my contribution.

The good news was I maxed the contributions, the bad news was that I had to turn it over to the Wise to manage -- the fund options included no index funds. Now as the year comes to a close, my employer is considering altering the plan to give us the option to self-manage our 401k.

As fate would have it, the Wise managers of the funds I selected have lost me about 10% of my contributions. The question is should I lock in the loss and transfer the remaining amount to the self-managed option which would allow me to invest these and future contributions Foolishly or do I leave it there until I recoup my losses (who knows when?!) before transferring it to the self-managed account? I have, of course, decided to funnel all future contributions to the self-managed option.

In Foolish principal, I know I must take a long term view, but should I do that as well with money already in the clutches of the Wise?


Obviously, you and you alone must decide. But….(ain't dere always one of dem?) … Over the long term, you can probably do better with your money in the self-directed account. Nothing says you can't wait until your losses are recouped before moving the money from the Wise, but to me that's like trying to time the market. As you said, who knows how long that wait will be? Having it invested the way you want it invested over the years will make today's loss look like a hill of beans in comparison assuming you're modestly successful in your choices. And you'll have the satisfaction of knowing you're in control, not some manager who may or may not be doing what you want done.

Congratulations on working for an enlightened employer who's willing to give employees the ability to call the investment shots. You're very fortunate because most folks don't have that opportunity in their plans.

Regards….Pixy



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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5732 of 75335
Subject: Re: Transforming my 401k from Wise to Foolish Date: 9/29/1998 7:29 PM
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VReinoso writes (in part):

The question is should I lock in the loss and transfer the remaining amount to the self-managed option which would allow me to invest these and future contributions Foolishly or do I leave it there until I recoup my losses (who knows when?!) before transferring it to the self-managed account?

I reply:

You currently have a sum of money available to you, and two choices how to invest it: (1) leave it with the Wise, or (2) manage it yourself. You have decided that you want to manage new contributions yourself. It seems to me inconsistent to leave old contributions with the Wise.

Reasoning to the contrary seems to me akin to making a bad bet in the late rounds of a poker hand because you want to "keep" the large sum of money you've already placed in the pot. In fact, this reasoning is fallacious; no matter where the money in the pot started, it's not yours any more. Similarly, no matter how much of your money the Wise squandered, it's already gone. All you can do is look to the future. --Bob

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Author: DownwardSpiral One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5740 of 75335
Subject: Re: Transforming my 401k from Wise to Foolish Date: 9/30/1998 9:51 AM
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A semi-contrarian reply to this thread:

I agree that the Wise are not always wise, and one must look deeper into 401(k) plans than the surface to see what the real costs are.

With that being said, there are many Foolish plans that are down or even in the past year, or since the first of the year. One must realize that retirement investing is for the long run, and the stock market does not always go up. Example: S&P 500, Feb 1, 1998--about 1000. Sept 1, 1998--about 1000.

If your coices are good, and you are not gouged by expenses, glory in the fact that you are buying more shares each paycheck than if the price were higher. After all, you are not spending the money yet.

On the other hand, if the drop in your account value is causing you to lose sleep at night, you have too much money inequities, and may have to forego some (possible) gains in equities for the peace-of-mind of other investments.



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Author: VReinoso Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5741 of 75335
Subject: Re: Transforming my 401k from Wise to Foolish Date: 9/30/1998 12:23 PM
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I must thank you all for your input. Apart from the valuable perspective your replies offer, it is also quite welcoming to get responses to my first Foolish posting. Thanks again.

The very process of typing my original post brought me closer to the decision that felt right and now that I have other opinions on the matter, I feel solid comfort in making the decision to withdraw all my money from the Wise.

Pixy's comment that to sit and wait to recoup losses was in effect an attempt at timing the market was compelling as was Bob's comment that to leave any money with the Wise was inconsistent with my decision to be Foolish.

DownwardSpiral's contrarian reply was also helpful, because it made me stop and review my reasoning. If it was the drop in my 401k that was troubling me, that I would indeed need to consider whether an equity position was appropriate. It was also helpful to be reminded that losses are not the exclusive purview of the Wise. The decision to be Foolish should not be viewed as protection from loss.

In reflecting, it became clear to me that what was troubling me was not the loss, but the lack of control. While I believe that my fund choices were sound in the context of an all mutual fund 401k plan that did not have an index fund choice, the more important issue for me was whether I wanted to make decisions in the context of mutual funds at all given the choice. I am certain that I do NOT, and so the decision is one fundamentally of control over my finances. My employer has now given me the choice between a Wisely managed 401k or a Foolishly self-managed 401k. In that context, I feel I must choose to be Foolish 100%; not out of disrespect for the wise or a naive assumption that I as a Fool will always post a gain, but out of a respect for myself and the comfort that all future investment decisions in my 401k (gloriously positive and painfully negative) will be transparent with a trail leading not to the plush offices of the Wise but to a Fool--ME!

Thanks again for all the input.

Best,

Victor



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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5756 of 75335
Subject: Re: Transforming my 401k from Wise to Foolish Date: 9/30/1998 6:32 PM
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Victor, you wrote:

In reflecting, it became clear to me that what was troubling me was not the loss, but the lack of control. While I believe that my fund choices were sound in the context of an all mutual fund 401k plan that did not have an index fund choice, the more important issue for me was whether I wanted to make decisions in the context of mutual funds at all given the choice. I am certain that I do NOT, and so the decision is one fundamentally of control over my finances. My employer has now given me the choice between a Wisely managed 401k or a Foolishly self-managed 401k. In that context, I feel I must choose to be Foolish 100%; not out of disrespect for the wise or a naive assumption that I as a Fool will always post a gain, but out of a respect for myself and the comfort that all future investment decisions in my 401k (gloriously positive and painfully negative) will be transparent with a trail leading not to the plush offices of the Wise but to a Fool--ME!

And that, sir, is what Foolishness is all about. I salute you for expressing the concept so eloquently.

Regards….Pixy



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Author: Thoughtleader One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5759 of 75335
Subject: Re: Transforming my 401k from Wise to Foolish Date: 9/30/1998 7:49 PM
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Gee, Victor, that was beautiful!
Take 2 asprin and call me in the morning.
--TL


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