SubscribeFri 19 Oct 2007
I’ve been very lucky in the last few years to have a great 401k plan at work with generous matching, and a great stock market to put my funds into. The market since the lows of 2002 have been on steady and uninterrupted climb up. I lost money 1999-2002, but since I was straight out college I didn’t have all that much money to lose. Sometimes timing is everything. I’ve been very fortunate to have had a great stock market to coincide with the ability to put more into my 401k. I’ve been able to max out my contribution the last few years. I thought it would be an interesting comparison to look at my 401k in comparison to S&P 500 Index, and a hypothetical account consisting of only contributions. I’ve normalized everything to value of $1 from when I started tracking in Sept. 2003.
What’s clear is that having a well performing 401K account is not just a function of having a great stock market, nor is just a function of making contributions. Both are equally important. However, at the early stages of savings, contributing is much more important than what the market does. In 10 years this chart should look very different. Hopefully it’ll look different in a good way and not just because everything point down instead.
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October 19th, 2007 at 6:37 pm
That’s a really cool graph! It does a nice job of illustrating how important contributions and a growing market are. Btw, does your 401(k) typically perform much better than the market? If you had a line with your 401(k) at one, with just percentage increases, would it be dramatically different than the S&P 500? Just curious!
October 20th, 2007 at 3:00 pm
My 401k has performed better than the S&P 500, but it’s not really any reflection on any great skill on my part, just a desire to be somewhat internationally diversified. I would say about 20-30% of my portfolio is international (including emerging market) and that has performed really well in the last couple years. I probably should do a more rigorous analysis of my 401k performance, but of all my account it’s the one I “set and forget.”