I have asked the same company 401(k) retirement plan investment management question for both clients and prospects over the last two weeks. The gain, and then loss, of double-digit investment gains this year should require each individual investor to give at least a passing thought to their answer.
In my experience, the initial shock of a stock market decline like the one in October much for my existing company 401(k) investment advice clients. Most individual investors never think about stock market risk. But they do understand dollars and percentages.
When I open a new individual company 401(k) retirement plan investment advice relationship, I always ask the individual investor the following question.
“How much money can I lose in your company 401(k) retirement plan account before you fire me?”
Most individual investors hesitate before they respond. Most responses, are not a direct answer to the question because the individual investor has never been directly asked that question.
I help by throwing out percentages… like 10, 20, or 30%. At that point I can see in their faces the mental arithmetic taking place in their minds.
After over nine years of straight-up stock market gains, don’t forget this very important point.
Retirement investing is never about how much you make during your working years. Or what your investment gains are over a given time period. You are most likely not going to retire with much more money than your October 2018 company 401(k) balance.
Instead, the most important part of retirement investing is how much of those investment gains you keep. You have a long way to go in your working career.
When you get a little down time, pull out your company 401(k) retirement plan statement from October 31, 2018. Then ask yourself this question. “How much money are you comfortable “giving back” in the next great stock market crash.”
Dollars or percentages don’t matter. The most important thing is that you have taken the first step in preserving your company 401(k) retirement plan account balance.
Ric Lager
Lager & Company, Inc.
