| Sargent & Lundy Savings Investment Plan |
| RE-EVALUATING YOUR RETIREMENT INVESTMENTS |
| The following excerpts are from an article in the Friday,
January 15, 1999 "Wall Street Journal". The opinions of the author,
Ellen E. Schultz, may or may not reflect those of the SIP Committee.
Two things may have fattened up at the end of the year: you and the funds in your retirement plan . In the fourth quarter, stock funds in 401(k)'s and profit-sharing plans were up an average of 20%, erasing the sorry losses of the third quarter, when stocks fell off a cliff. If you take a look at your year-end account statement, which should be turning up in your mailbox any day now, you probably will see some startling turnarounds. Fidelity Magellan Fund, which was down 11.1% in the third quarter, bounced back 27.2% in the fourth quarter, and finished the year with a 12-month total return of 33.6%. Janus's flagship Janus fund was down 11% in the third quarter, but up 28.4% in the fourth, for a one-year gain of 38.9%. Vanguard U.S. Growth dipped 9.4% in the third quarter, but blasted back with a 24.7% gain in the fourth. It finished the year up 40%. Moral of the story: Pantywaist investors who pulled over to the sidelines in August, and afterward, missed the recovery. Meanwhile, hardy investors who stuck to their guns when the going got rough were rewarded. Actually, inertia may be the real hero here (Vanguard Group notes that fewer than 2% of plan participants make exchanges each month). But if you are a long-term investor, inertia can be a virtue, as long as you have a good investing strategy in the first place. In the year ahead, you can expect more of the same: the market still is high even after this week's drops; it will rise and fall; and you won't be able to move your money out precisely before the dips, even if you spend every night on the Psychic Hotline. But although you can't control the market, you can control how you allocate your money, and whether you are in the market, both of which can make a heck of a difference. Take Advantage of the "January Effect": One thing you might do, right now, to boost your returns is to call your retirement plan and tell the person to move any cash you have lying around in money-market funds and put it into stocks funds. (Profit-sharing plans also typically dump money into employee accounts once a year - in January - and many 401(k)s generally put contributions into money funds.) Why put money in stocks now? To take advantage of the January effect, a somewhat mysterious annual phenomenon, in which stock prices get a boost in the first couple months of the year. Maybe it is because money floods into stock funds at the beginning of the year, when people invest year-end bonuses and cash in stock options, and make 401(k) and IRA contributions. During the past three years, net new money pouring into stock funds in January has averaged $19.9 billion, which is 41% higher than the $14.1 billion average for other months, according to Leuthold Group in Minneapolis. "Fund managers are under pressure to put the money to work, so the money is being invested right away," mostly in the stocks of large U.S. companies, says Eric Bjorgen, a Leuthold research analyst. That kind of buying pressure tends to push stock prices up - hence, the January effect. There is a chance, of course, that the January effect already came and went with the market's rally through last week. Still, if you have accumulated a healthy stash of cash in your retirement plan, don't let it gather dust. Put it to work. Update Your Asset-Allocation: January is a good time to think about whether you have put an appropriate percentage of your retirement savings into stock funds, which you need for their inflation-fighting returns. If you are between 20 and 40 years old, you can prudently put as much as 100% of your money into stocks because retirement is decades away. If you are older than that, shoot for 60% to 80%, depending on both your age and volatility tolerance. Review The Performance of Your Funds: Compare the performance of your stock and bond funds with that of similar funds. You want to make sure that over the past one, three, five and 10 years they have done as well as similar funds. Your quarterly statement ought to include the appropriate benchmarks for comparing your fund's performance. If it doesn't, call the plan sponsor, ask what category the fund is, as determined by fund tracker Morningstar Inc., and what the average returns have been for that category. Keep in mind that "balanced" funds will generally underperform stock indexes when the market is rising, because the portfolios include bond investments. "Equity-income" funds also may lag behind market benchmarks because they load up on stocks paying higher-than-average dividends, not necessarily the growth ones that pepper major indexes. Check Costs: While you are sizing up your funds, pay attention to the fees they charge. If you hold stock funds that are actively managed - that is, a portfolio manager picks supposedly promising stocks as opposed to simply replicating an index - and your portfolio manager has chronically underperformed the market, why pay the higher management fees associated with active management? Instead, put your money into lower-cost index funds. The average annual expense ratio for a balanced fund is 1.37% of assets; if you paying more, you are probably paying too much. If you are paying a "12b-1" fee, which might range from 0.25% to 1% of assets on top of fund expenses, ;you are paying too much. If you are also paying a sales load or a surrender charge, ;you are paying too much. School teachers and hospital employees should be especially alert to high costs because they typically own variable annuities, which are mutual funds in insurance wrappers. |
This page updated on 2/1/99