I received my year end statement from Fidelity yesterday for my company Roth 401k. Now, we all know how bad 2008 was in regards to investments. The Dow Jones Index lost over 30% alone. Now, I knew that my 401k was going to be bad, but can you imagine seeing the difference between my contributions and the increased value was negative 70%? Looking at the summary, I’m at least happy that my ending balance was greater than my beginning balance. Now that would have been really bad.

What shocked me was looking at my Roth 401k contributions against the market value change in 2008. I did a pretty good job of contributing this past year. With having purchased a house, I was still able to maintain a pretty high % of my income to my Roth 401k. It was even better considering I have company matching. Then the bad news – change on market value. Taking my investment and subtracting the market loss the number that came out was shocking – I lost 70% of my 2008 contributions! Upon further review, my personal rate of return, calculated with a time-weighted formula, was actually a 38.5% loss.

But I’m not freaking out about it and here is three reasons why:

• I’m not retiring today. I still have 3 decades of work ahead of me so I don’t need the money right now. Time to make the donuts, not eat them.
• I’m buying low. Sure, the market frightens me right now, but I know we are at some lows we (hopefully) may not see ever again. I’m buying low to help offset 2008.
• Did I really lose it? Currently, I’m only recognizing this loss on a piece of paper. If I tried to cash out, then I’d really feel the loss.

You can’t just look at your contribution and the end value to determine your loss. You have to look at your portfolio as a whole. Looking at it any other way is just faulty math. You have to stay big picture when reviewing your performance numbers.

I only wish I had been contributing to a Traditional 401k. I could take advantage of this loss by converting to a Roth 401k and only paying taxes on the current amount instead of my total contribution. I just wrote recently about the benefits of a 401k conversion. 

How did your 401k do in 2008? Are you backing out of investing? Are you contributing more?