I am going to be 60 years old this week. Maybe that is the reason that I am more concerned about preserving the last few years of my client’s investment gains than remaining fully invested in the current stock market.
The time comes for every near-retirement investor to be reminded of a simple fact of stock market investment life. That is, the next big stock market move will have a greater impact on your retirement net worth than this year’s taxable income.
If your company 401(k) retirement plan balance is around $100,000, a 10% stock market decline means you lose about $10,000. That is less than one calendar year worth of individual and company-matching 401(k) contributions.
If your company 401(k) retirement plan balance is around $500,000, that same 10% stock market decline is more frightening. Do some quick mental arithmetic and figure out how many years it takes to add $50,000 to your retirement savings.
I have several of individual company 401(k0 investment advice clients who have balances over $1,000,000. As you would expect, most of these individual investors are well within sight of their desired retirement date.
These individual investors can’t afford to lose a meaningful amount of company 401(k) retirement plan principal so close to their desired retirement date. They don’t have enough working years left to recover a large dollar amount of losses.
The history of the U.S. stock markets suggests that it takes years to move up, and weeks to move down. We certainly are in historical stock market times.
The last historic stock market decline has been called The Great Recession. The official definition of that decline included the time period from December 2007 to June 2009. It took the Dow Jones Industrial Average until March 2013 to recover its losses.
It took just under four years to “get your money back.”
If your working career is going to change dramatically in the next few years, give some very serious consideration to taking the necessary steps to preserve your current company 401(k) retirement plan account values.
The stock market has a mind of its own. It cares not one bit about your retirement plans.
Ric Lager
Lager & Company, Inc.
