Bad Timing of Investments Harms 401(k)s and Pension Funds

There is an interesting graphic on investment returns in the January 2 New York Times, titled In Investing, It’s When You Start and When You Finish. Thanks to Nat Trumbull for pointing this out to me.

It indicates one of the reasons why 401(k)s have done so poorly. I would argue, though, that even with the best of market timing, they do not perform as well as traditional pensions for retirees.

The graphic also indicates why pension fund investments are doing poorly. Pension funds depend on their rates of contributions, withdrawals (payment of pensions), and investments. The more they depend on investments, the more vulnerable they are to market volatility.

–James W. Russell

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