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On money

401(k) investors lost more than paper profits

By HELEN HUNTLEY, Times Staff Writer

© St. Petersburg Times, published August 4, 2002

401(k) investors lost more than paper profits

Q. Am I the only one who is getting tired of hearing these people who are complaining about the huge sums of money lost in their 401(k) accounts? I know it is impossible for them to have actually put that amount into savings. They are instead talking about the amount of their investment when the stock was at its highest. It reminds me of people who go to the casino with $200 to blow. They win a pot of $3,000, keep playing and say they have lost $3,200, not the $200 they started with.

Most 401(k) plans include a low-risk account similar to a CD. With greed comes risk, and with risk comes the possibility of loss. I too have lost money by being unwilling to invest the bulk of my retirement monies in growth accounts. Now I'm glad I didn't.

A. I'm sure you are not alone, but I think most stock-market investors are worthy of at least a little sympathy.

You are absolutely right that many investors have lost only their paper profits. However, others have lost principal, particularly if they came late to the party. Anyone who has been investing in stocks for only a few years probably has genuine losses.

Lots of people took more risk than they should have, betting heavily on Nasdaq stocks. But they aren't the only ones who lost money. Even conservative, well-diversified investors have experienced plenty of pain.

I don't blame you for feeling a bit smug under the circumstances. However, these low interest rates are going to make it tough for investors to stick with income investments. Since we cannot predict the future, it seems smart to me to try to strike a balance between growth and safety.

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Q. What is the best way to invest $20,000 to earn high tax-free interest and get a monthly check? I don't want to invest in the stock market.

A. Unfortunately, there is no way to earn "high tax-free interest" without taking big risks with your principal. If there were, it would be very popular! The investment that comes closest to what you have in mind is a municipal bond fund, which you can buy through a broker or directly from a mutual fund company. But if you are in a low tax bracket, you probably would be better off buying a taxable bond fund.

Keep in mind that bond prices -- and share prices for mutual funds that own bonds -- will fall if interest rates rise. That means you could get back less than you invested if you sell your fund. For this reason, some people prefer to buy individual bonds they can hold to maturity rather than bond fund shares, which never mature. But if you buy individual bonds, it is crucial to diversify. That means you need to have enough money to assemble a portfolio of bonds from different issuers.

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Q. I own 1,000 shares of WebLink Wireless Inc. and 200 shares of Xceed Inc. I believe that both are in bankruptcy, and I have not been able to find the outcome. Are they still in existence or is this a lost cause?

A. If you buy individual stocks, especially in small companies, either you need a good broker who will keep you informed or you need to learn to do your own research so you can keep up with the stocks yourself. A company's Web site is usually a good starting point. If you don't find the information directly on the Web site, you may be able to find the telephone number or address to contact the company directly. The next place to try is the reference section of the public library.

WebLink Wireless reached agreement with creditors on a restructuring that leaves current shareholders out in the cold. You can read about it on the Web site (www.weblinkwireless.com). I couldn't find a public company named Xceed Inc., but there there are a number of private companies that have "Xceed" as part of their names. Happy searching!

Online Money Map

If you are interested in following the WorldCom bankruptcy, check out www.WorldComNews.com for background information and news updates.

-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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