Corporate Cuts: Don’t be “Double-Dumb”Monday, March 30th, 2009 by Charles Mayfield, CFP®
I got the “double dumb” phrase from one of my earliest career mentors, Bill Lohnes. Bill was the managing director with the company Cass and I worked with before starting our own firm. Bill used the term “double dumb” quite a bit in the year 2000. In many cases, he was referring to clients making a terrible financial decision. Typically, these decisions were emotional in nature and either involved greed or fear. We have certainly seen our fair share of greed and fear in the market lately.
Twice in the last week, I’ve had a conversation with a client on the topic of benefits. In both cases, I was informed that our client’s employer had decided to stop matching contributions to their 401k. Once we worked through the expletives, I uncovered that both of these clients were considering taking all their 401k balances and putting them in cash. I certainly understand the fear that drives a decision such as this. However, I advised them to stick it out.
In both instances, I was able to talk them out of moving money into cash. Only to have them tell me that if they were going to keep it in the market…then they would at least be cutting their contribution now since there was no longer a match. Double dumb!
There are two very time tested investment philosophies that work in the long run: dollar cost averaging* & time “in” the market.
We have discussed dollar cost averaging* before and will certainly do it again. For this post, let’s focus on time in the market compared with trying to time the market. This slide illustrates the impact being out of the market can have on a portfolio over a substantial period of time. We don’t know where the bottom of this market is. No one knows. Getting out now, parking your money in cash is most likely counterproductive to your portfolio’s long term health. Stay diversified and in the market. If history repeats itself, you’ll be glad you did.
*Such a plan involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through periods of low price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.