Gee, not quite sure what your guys 401k is doing... lost half its value a year and a half ago in that whole bank collapse debacle occurred, with Lehman Bros being the straw that broke the camel's back. Since then, it's at about 130% of my previous peak!
Passive investments by way of long-side investments... losing 1.4% in 2 days... those long term investors don't particularly care. That 1.4% drop would never be realized by those folks--they're in it for the long term!
Best thing to do if you're itching to do something if your portfolio's not where you want it to be, is to dump all the stock you have, then slide it over to a same-industry stock, given that the same-industry company isn't too volatile. Say for instance your portfolio's down, and you're sitting on a bunch of Yahoo stock. Dump it all, use whatever funds that are freed up to buy Google stock, for instance, and then declare your realized losses in the 2010 tax return next April. Bam, done.
I've been doing this a long time, so don't be surprised if I don't believe that you've recovered to 130% of your previous peek.
The DOW was knocking on 14,000 in Oct of 2007, and over the next 17 months (roughly), it dropped to about 7,000. That equated to roughly 50% losses for most long-side passive 401k investors. The problem is that once you lose 50%, you need gains of more than 50% to just get back to your previous peak.
I'll use nice round numbers to show the point; let's say your 401k was $100 bucks. if you lose 50%, you are down to $50 bucks. After that, a 50% gain will only take you back to $75 bucks. This is the scenario most 401k folks are facing.
So, recalling that the DOW was at a high of around 14k in 2007, I have to point out that the best we've done since then is 11k, and lately we've been hanging out around 10k. So I'm skeptical of anyone who claims to have recovered to 130% of their previous peak, especially if they did it only on the long side. If you can do that, you need to start a hedge fund.
As far as those investors not caring about a 1.4% drop...keep in mind this is over a very short period of time, so they should take notice...and there were a lot of advisers saying the same thing in late 2007...the result was near catastrophic losses for many people. BTW, 1.4% of a fund based on the Dow in 2010 is more devestating loss than a 1.4% loss during this same time in 2007 because most people have less money now than they did in 2007. It's more painful to lose $1400 our of $100k than to lose $2800 of $200k.
There is no really one "best thing to do," and the "sell yahoo, buy google" strategy is (I'm sorry), simply ridiculous. What if they owned Home Depot? Would you tell them to sell and buy Lowes stock? That would be a waste of time. Both are following the same trend line (downward at the moment), and the same goes for Yahoo and Google.
Diversification is essential. There is really no such thing as "industry stock." You can, however, purchase sector ETF's just like a stock, and you can invest in just 2-3 ETF's and be pretty well diversified. Own a few shares of a Russell Indexed ETF, a few shares of an S/P indexed ETF, and a few shares of a NASDAQ indexed ETF using an online account, and you have purchased a broad array of stocks with minimal expense. Definitely a lot cheaper than a broker or an Edward Jones advisor.
That is the simple part; the more complicated part is knowing when to exit your long position and hide out in cash for a bit.
When the market was hanging out close to 14,000 in 2007, I went to cash, and while some might make fun of my measly 1% gains over the next 17 months, the rest of the country was crying over 50% losses...remember all the 201k jokes? No crying here.
If you are really aggressive, you could try some investment on the short side; while investors sit on losses over the past couple weeks, I went short on some ETF's and made 5%.
This kind of active strategy is why I've paid cash for everything I've bought since 1993, including two college degrees, the fully loaded jeep I bought in Dec 2008 when the market was almost at the bottom, and the FZ6R I just bought last week to replace my Virago.
But I say again...the 2007 Dow was 14,000, and the 2010 Dow is less than 10,000. If you prefer another index, I'll use the NASDAQ, which is 25% below it's 2007 high and hasn't matched the 2007 high.
Even Buffet's Berkshire Hathaway only pulled off 2.7% last year...so I'm not inclined to find claims of a 130% recovery to be reliable or rational, especially given the advice.
Not trying to be a critic, just being a skeptic.
) I've figured that I have nearly paid for my bike in the savings costs versus what I would have paid if I had just drove my truck to work everyday (over $5500 a year for gas and tolls vs. $1000 for gas and toll-free on the motorcycle)