I wrote this article on October 4, 2011 on my Golden Valley Patch Blog.
Common sense 401(k) investing is not all that common. If it was, most Minnesota company retirement plan investors would already be rich and retired. As we all know, most people are not rich and are still working every day.
If the “buy-and-hold” long-term investment strategy espoused by mutual fund companies and the majority of financial advisors did in fact work, all 401(k) company retirement plan participants would be guaranteed to eventually be rich and retired.
Just the opposite is true. How many recently retired investors do you know who have had to “go back to work” because of the losses in their company retirement plan accounts over in recent years?
It is very important in the management of your company retirement plan account to manage stock market risk in the early stages of another great stock market decline.
Remember that long-term “buy-and-hold” investors have experienced almost 50 percent losses of company retirement plan account values twice in the last decade. It makes no investment management common sense to go through another huge loss of principal in your company retirement plan account again.
The “buy-and-hold” company retirement plan investment strategy did not work twice in the last 10 years. There is no reason to believe that it will work during the current stock market decline.
If the U.S. economy does go into recession, if Europe does not figure out its current debt crisis, or if the Chinese economy does slow down, it does not matter now. The U.S. stock market is currently telling all investors who will listen that it is concerned about the current state of worldwide economic events.
The company retirement plan investors who are not listening to what the stock market is telling them now are the same ones who did not listen before. These company retirement plan investors stubbornly tried to “buy-and-hold” a declining stock market environment.
For most 401(k) company retirement plan investors, avoiding the stock market all together might be the best investment strategy now.
Ric Lager
Lager & Company, Inc
