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'USA TODAY' Reporter Discusses 401(k)s

Aired July 17, 2002 - 14:36   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEO CLIP)

ANNOUNCER: Nearly 80 million Americans own stock, either directly or through mutual funds. That's 48 percent of all U.S. Households, a dramatic increase from just 19 percent back in 1983.

(END VIDEO CLIP)

KYRA PHILLIPS, CNN ANCHOR: It's been a rough week for investors. The past six sessions were losers. And this morning's rally faded by midday. What's a worried investor to do with their 401(k) now?

For some answers, we turn to "USA TODAY" personal finance reporter Sandra Block.

Hi -- Sandra.

SANDRA BLOCK, "USA TODAY": Hi, Kyra.

PHILLIPS: OK, I admit I am one of the ding-a-lings that's taken my 401(k) statement, thrown it in the drawer, don't even want to look at it, but actually, we should be looking at it, right?

BLOCK: Yes, you should. I mean, the good news is that most 401(k) investors are not panicking, they're not moving all their money into money market funds and bonds. But that's a good thing. The bad thing is that most investors are ignoring their 401(k)s, and as a result, the balance may different from what they intended. The market may have moved your investment in a way that you don't want them to be.

PHILLIPS: Well, what do you think of all these people that are taking their money out of stocks and into money market accounts?

BLOCK: Well, they're sort of ignoring the old adage, which is to buy low and sell high. They're basically selling low. And if history is any guide, when they decide to get back into the market, they will be buying high. So they are sort of doing the opposite of what most financial planners recommend that you do. But it's also sort of human nature to want to get out when you are in trouble.

PHILLIPS: All right, let's get down to business. You have got aggressive investors, moderate investors, and conservative investors. If I am a aggressive investors, how do I rework my 401(k)? BLOCK: Well, if you are an aggressive investor, you probably have most of your investment in stocks to begin with. You might have a small amount in bonds or a money market fund. And because the value of your stocks has declined, the amount that you invested in bonds and money markets has probably gone up. So when you rebalance -- and this isn't something you should do every day, maybe just once a year -- move that money back into stocks. That way, when the market rebounds, you will be in a much better position to benefit from it.

PHILLIPS: OK, what if I am a moderate investor?

BLOCK: Well, if you are a moderate investors, it's sort of the same thing: You are going to have, you know, more in stocks, but also more in bonds, because you are getting a little closer to retirement. Same thing: You are going to have even more in bonds than maybe you intended, so you want to maybe move a little bit of that back into stocks, you know, figure out what your original asset allocation was. If it was 70 percent stocks and 30 percent bonds, just make the changes to get back where you you were, because right now, you very well could be, you know, 60 percent stocks and 40 percent bonds. That may be more conservative than you want to be at this point in your life.

PHILLIPS: I now stand about ten years away from retirement. I'm a conservative investor. What do I do?

BLOCK: Well, in that case, you really want to start thinking about you know is my money going to be there when I retire. One of the scary things that is happening in this bull market -- or in this bear market, excuse me...

(CROSSTALK)

BLOCK: ... is that lot of people went into retirement with a lot of money in stocks because they made so much money '90s they just didn't think it could down; now, they're retired, and they have incredibly shrunken portfolios. So when you're getting close to retirement, preservation of capital is key. You really want to have maybe 70, 80 percent of your money in bonds and 20 to 30 in stocks, depending on other investments and how risk-tolerant you are.

PHILLIPS: You see -- a lot of us -- hey, being in this business, we have to be risk tolerant.

Do you think we'll see the kind of returns like we did in '90s.

BLOCK: A lot of experts say no. And that's another thing you have to think about when you are planning your portfolio. You are -- you are not going to see 20 percent a year again for awhile. You know, ratchet it down. When the market turns around, we still could be looking at, you know, 7, 8, 9 percent a year on the stock side of your portfolio. So what that means for investors is they have to save more. They can't count on the market to do for them.

PHILLIPS: All right, I have to ask you this: Is it possible to lose everything? I had to ask. BLOCK: There's one scenario where you could loss absolutely everything, and that is if you have 100 percent of your 401(k) in company stock. And there are people out there who have exactly that. They work for Enron, they work for WorldCom, they work for other companies. And in that case, yes, you could watch your portfolio go down to nothing. If your portfolio is invested in mutual funds, diversified among several sectors, it's highly unlikely that it is going to go down to nothing.

PHILLIPS: Sandra Block, "USA TODAY," I always enjoy your column. Thank you very much.

BLOCK: Thank you.

PHILLIPS: All right, Sandra.

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