• Borrowing declined. The total number of investors who borrowed against their retirement plans declined from 2007. The total went from 9.7% to 9.0%. This is good news.
• Keep on trucking. 96% of active 401k plans from Q3 2008 contributed to their Q4 plan. Q4 was ugly, yet we kept putting money in. Most of us understand why (hint: time value of money!).
• Hardship up, amounts down. Even thought the number of hardship claims increased, the amount withdrawn was lower.
• Diversification. More users had better diversification in 2008 than 2007. Total number of 100% equity accounts dropped from 20% to 16%. In 2000, it was 37%. No doubt most of that change is because of the dot-com bubble.
• cruise control. Automatic enrollment numbers increased as well as 60% of plans being in lifecycle funds (aka target retirement funds). Set it and forget it!

Hopefully the pains of investing in 2008 are behind us, but we shouldn’t forget. It’s a long bumpy road to financial wealth and retirement. Keeping track of your goals, reviewing your portfolio allocation from time to time, and taking advantage of employee matching and other benefits will smooth the adventure.

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?