Target Date Funds, Rebalancing, and Massive Price Volatility
Are You Over-Indexed on Stocks? Time to Diversify?
Meanwhile, how much of your money do you have in stocks? The youngest workers, according to a new study, have 92% of the money in their 401k. In stocks, 92%. The average 45 year old has 82% of their money in stocks, was only 69% a decade ago. Even 65 year olds have nearly half their money in stocks. You might not even know you're doing it.
Why? Because in your 401k, you're probably investing via a target date fund. This is the most popular form of investing in 401k plans across the country. You buy one target date fund, a 2030 fund, a 2040 fund, a 2050 fund. And the fund provides you a mix of stocks and bonds. And if you have a 2050 fund, it could be 90% invested in stocks. Even if you have a 2030 fund, it could have half its money invested in stocks. Are you aware of how much you have in stocks in your target date funds in your 401k at work? So yeah, we've seen huge losses in the stock market so far as well as the bond market and now the crypto market.
We've seen massive price volatility in a single day since all this decline began last fall. It's fascinating how people are looking at what's going on in crypto. And saying, gee, bitcoin is down 20% in a day, 70% over seven months. Well, take a look at the stock market. In a single day, Chegg fell 49%. Snapchat lost 43% in a single day. Buzzfeed down 41%. Facebook, 26%. Target lost 25% in a single day. So did Netflix in a single week. Last February, GameStop fell 76%. Paramount, in one week lost 52%. DocuSign, 46%. Peloton fell 40% in a week, 53% in a month. We've seen huge losses year to date. Carvana is down 91%. FuboTV down 79%. Shopify, Redfin, Rivian, Snapchat, Netflix, Peloton. They're all down 60%, 70%, 80%. Even Starbucks is down 37% this year, the worst since 2008. The list goes on and on. Desktop Metal, Teladoc, AMC, Barnes and Noble.
A buying opportunity for stocks, bonds, real estate, and even crypto
Funny, as part of all this, is that people keep looking at Bitcoin. I actually heard one Wall Street analyst actually say to people last week that Bitcoin is a stupid investment because it's down for the year. Really? I guess he's happier with Peloton, Netflix and Carvana. They're down 70%, 80%, 90%.
At some point, all of these market declines will become a buying opportunity for stocks, for bonds, for real estate, for crypto. I just don't think we're there yet. One big reason, as I mentioned, you're not panicking yet. Investors have been amazingly complacent. But give it a little more time, maybe a few months, perhaps by this winter when we start to see things getting really bad, we'll start to see the panic. And that's when we'll see what you and your advisor are really made of.
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