John Lounsbury

50% Returns, No Risk?

Roger - - -

You sucked me in to read the article with the title. Now that I've read it and looked through the comment stream, you've sucked me in to write a comment.

I understand where the critics are coming from and you didn't give all the detail you should have, but when I read the article (before seeing the comments), I was thinking the 401(k) plan would have a "Fixed Value" or "Stable Value" option, which are usually comprised of 30-day or less insurance contracts and other short-term debt. In 401(k) plans that my clients have, these have been yielding between 4% and 5% through most of 2008, but some are now under 4%. These accounts have recently been paying up to 2x the money market options (sometimes more).

So what I was thinking as I read your article was that some part of the additions to the employee's account would go into a "Stable Value" account and some portion into other options, like TIPS (if available) or equity (like S&P 500 index fund).

The next step went back to the no risk part of your title. That would imply investing in something with little chance pf losing principal. So you could have suggested putting all (employee and employer contributions) into the "Stable Value" fund.

What I expected you to introduce by the end was a suggestion that the Stable Value account is where you could put the employee contribution and the employer contribution could be dollar cost averaged (DCA) into the S&P 500 fund. This is almost no risk for the employee's contribution and the employer's contribution could be invested with lower risk by DCA.

You didn't carry the article to a conclusion that would have made more sense so I understand why the critics wrote you up.