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Protect your 401K money Series (post #1): What lessons I have learned (so far) from the current economic crisis?

October 10th, 2008 · 1 Comment

I have received a lot of visits to my 401K related posts on this blog. At work, the topic of 401K and economic downturn dominated water cooler discussions. Everyone is deeply concerned about the economic downturn, what to do with our 401K money, and how to prepare for retirements.

I don’t think anyone has a solution now. We’re all hungry for information and solution, but they’re just simply not available. There are tons of financial publications, web sites, gurus, academics. But, did anyone really know what’s going on, what’ll happen, and have a sound strategy? I haven’t found that "guru" yet. If you know someone who has the answer, please let me know. 🙂

However, I do feel that I have learned several important lessons that I would like to share. Maybe we could use these reflections as a starting point to figure out what to do in the future.


  1. The "efficient market" theory is wrong. For a long time, Warren Buffet has argued against the popular "efficient market" theory. I think the current economic situation proved that the market didn’t even come close to be "efficient".
  2. What would have happened to social security if the Bush Administration was able to privatize social security? It’d be a complete disaster.
  3. Every personal finance book and financial advisor would tell you that "money market fund" is as safe as it gets. But, the current financial crisis just demonstrated that Money Market Fund might not be safe. I think we all need to take a hard look at some of the "conventional financial wisdom" that were told over and over.
  4. If you plan to retire in the next 10 years, you need to be very conservative in term of managing your retirement accounts. I have  heard way too many stories in the past few days that near-retirement couples just lost a significant portion of their retirement holding due to the current downturn.
  5. No matter how big/reputable a financial institution is, it’s still very vulnerable to catastrophic, "black swan" type of economic event.
  6. I think some of the personal finance/economic blogs are much more useful than major finance web sites/publications. The financial media is full of reporters, pundits and gurus who follow the herd and don’t know what they’re talking about. Some of the blogs are much more authentic, honest, thorough in their analysis, and brilliant in their insights.
  7. Now, the biggest uncertainty and risk in our economy is regulatory uncertainties — what other measures the government will implement? There seems to be something new coming out of the government every few days. Given the uncertainty, instead of trying to get into the market now (assuming you still have money to invest) and make a kill, I think most of us should play it safe. Park our money in cash or money market funds. Put your money back into the market only after you have seen some sure signs of market rebound. You might not make a kill this way, but you’ll be protecting your downside.

What lessons have you learned? Do you agree or disagree with my learning?

Related posts:

  1. Your 401K Account and U.S. Treasury Temporary Guarantee Program for Money Market Funds
  2. Do you have 401K money in Money Market fund? It might not be safe!

Tags: Beat Recession

1 response so far ↓

  • 1 Susan Kishner // Oct 10, 2008 at 7:57 pm

    Nice writing style. I look forward to reading more in the future.

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