Today’s stock and bond market climate is unusual. Both volatile. With an added touch of out of control inflation.
A “buy-and-hold” or “set-it-and-forget-it” 401(k) investment management strategy no longer applies. In fact, it is dangerous to your 401(k) principal.
The stock and bond markets are in a dangerous place. A meaningful dollar amount or percentage of your 401(k) balance should be in the money market account now.
You can’t “make money” owning stock or bond mutual funds now. That has been a true statement for many weeks. Go back and check your year-end 2022 401(k) statement as a reminder.
The only reason your 401(k) has grown at all is due to your personal contributions. And your company-matching contributions. The great Mark Twain quote applies here.
“The return of my money is more important than the return on my money.”
As of March 2023, the yield on a 52-week Treasury bill was 5.249%. Some recent CD rates for 12-months have been 5.00% Annual Percentage Yield.
You may not be able to buy a Treasury or CD on your default 401(k) menu. Consider looking into the SDBA (self-directed brokerage account) option. If you have that option in your 401(k).
SDBAs are brokerage accounts within 401(k) retirement plans. Participants use this account to buy individual stocks, bonds, and exchange-traded funds (ETFs). You can also own mutual funds that are not part of your 401(k)’s default mutual fund menu.
Many of the SDBAs my 401(k) advice client use include the ability to own Treasury bills and CD’s. To take full advantage of the attractive current interest rates.
Build up the size of your 401(k) money market account balance now. By selling the 401(k) mutual funds you currently own. The mutual funds that have fallen in value faster than the popular stock market averages.
At some point, you will be able to buy better mutual funds offered on your default 401(k) menu. At lower prices. Think about this idea as an “upgrade” on the 401(k) mutual funds you will own in the future.
It is like your favorite store. They will have a big sale on the items on your wish list. When that sale happens, you need to have the money to pay for those items.
Right now, every stock and bond market mutual fund in your 401(k) is “on sale.” You don’t know how much more the sale prices will fall. And you don’t know how much longer the sale prices will last.
If you don’t have a 401(k) money market balance, you can’t take advantage of those mutual fund sale prices. Now, or soon. And you will not be able to upgrade the 401(k) mutual funds you own.
Ric Lager
Lager & Company, Inc.
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