This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Be the Master of Your 401(k) Domain

As the financial crisis continued to unfold and the stock market crashed last week, we saw an increasing number of news stories and TV segments aimed at trying to help everyday people sort this out and assess what it all means for their future.

Part of this effort should include a better understanding of traditional, or open-end, mutual funds that are the only investment product available in many 401(k)s and are also the preferred choice for many investors outside of retirement plans.

The S&P 500 has fallen 38% so far this year, meaning that the vast majority of stocks are also going to be down a lot. Anyone owning stocks in a fully invested portfolio is almost certainly going to show a loss close to 38% either way. This includes equity mutual funds.

Most mutual funds, either by philosophy or prospectus, will be very close to fully invested at all times. They might leave a 5% cash cushion to manage redemptions. There are, of course, exceptions but mutual funds rarely exceed a 10% cash level, and an index mutual will maintain minimal cash.

The chart at the bottom of this article shows the year-to-date performance of an unnamed fund that owns domestic and foreign stocks, compared with the S&P 500 and an ETF that tracks the MSCI World Index.

Contributing to the performance is the fact that it is essentially fully invested. Anyone owning this fund has had bad luck on two fronts. One is that the market is down a lot this year and the other is that this, coincidently, is a year that the fund is lagging the market. All mutual funds beat the market some years and lag it others. The funds that never beat the market are ultimately closed or merged into another fund.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,296.92 -119.93 -0.69%
S&P 500 2,005.97 -15.28 -0.76%
NASDAQ 4,658.2880 -25.1190 -0.54%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs