Emotions Harming 401(k) Returns?

401(k) investors are running for the hills. As they see the values of their 401(k) plans plummet, they are pulling their money out of equities (ie. stocks) and putting it into fixed income investments (ie. bonds/stable value). This according the the Hewitt 401(k) Index.

In most cases, this probably isn't the wisest decision. It's not easy watching your retirement funds, and the hopes and dreams they represent, as they seem to melt away. But the stock market is a roller coaster. It has it's ups and downs. Fortunately for investors, historically the ups have far outweighed the downs.

Unfortunately for investors, emotions take over when it comes to investing and their money. This usually makes investors buy when things are soaring and sell when things are tanking - the exact opposite of what they probably should be doing.

As Warren Buffett once pointed out, if you were going to buy a hamburger or a car, would you hope the prices of hamburgers or cars go up or down? Obviously, you'd want them to go down.

Same for stocks. The only people who should be hoping for higher stock prices are those want to sell them. Everyone else should enjoy the bargain the market is now giving them. When stocks go on sale, those who cast their emotions aside and buy can really pad their long term returns. These are the times savvy investors make their fortunes in the stock market.

As is often the case, no one has said it better than Buffet himself . . .

"Be fearful when others are greedy and greedy when others are fearful."

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