My inbox is full of 401(k) complaints this week.
The S&P 500 is a couple of percent from its all-time high. But the emails all say some version of the same thing: the market’s a couple of points from a record, so why does my 401(k) look like crap?
One guy put it perfectly. He’s getting killed by bonds, and he’s getting killed by tech.
I believe it. The only way your portfolio looks good right now is if you own a handful of tech stocks, because everything else looks like crap.
People are now calling it the stealth bear market. I don’t care what you want to call it.
So let me put it to you straight. If you’re flat on a year-to-date basis, you’re doing pretty good. There are a lot of 401(k)s out there that are off 10% to 20%.
The Safe Stuff Got Hit Hardest
And this is so interesting. A lot of the 401(k)s that are off 10% to 20% are the more risk-averse ones.
After the financial crisis, a whole slew of funds came out built around low beta, like the low-volatility version of the S&P 500. Beta measures how much something moves compared to the S&P. A low-beta fund is supposed to move with the S&P, only at a lesser rate.
But in a marketplace where beta flipped over, some of that lower-risk stuff is moving opposite the S&P, and at a higher rate. The irony is that the lower-risk stuff had more risk in it all along.
Then there’s the benchmark. Most 401(k) funds don’t measure themselves against the S&P at all. They benchmark to some weird thing like the Wilshire 5000, so good luck figuring out how you’re doing.
Watch 29,000
I’m listening to people panic, and I’m looking at the QQQs, the fund that tracks the Nasdaq-100. They’re barely down this week.
They were down last week, I’ll give you that, about two standard deviations. The week before that, they were unchanged, and every week before that, they were higher. So you had one down week, and people are crapping themselves.
We’re not even out of the range we’ve been in for about six months. We haven’t broken down, and we haven’t even gotten close.
And yet people are already suffering in their portfolios, badly.
So imagine what happens if it does break. The line I keep coming back to is 29,000 on the Nasdaq-100. You get through 29,000, and this is going to turn into an absolute crap fest inside the Nasdaq.
I’m not telling you we’re going up or down. I’m telling you the volatility is open now, and it’s going to stay open for the foreseeable future.
Your timing isn’t going to be good in a market like this, so don’t count on it. Use spreads when possible, because you’re going to take some lumps on the head along the way.
To your success,
Don Kaufman
