All of the major U.S. stock market indexes gave up their 2018 year-to-date investment gains over the last few weeks. That fact was unthinkable a couple of months ago.
One of the main concerns for U.S. stocks now is the future actions of the Federal Reserve. The Fed chairman, Jerome Powell, has vowed to stick to his policy of “gradual” rate increases this year and next.
Bond market traders expect one more quarter-point rise in the federal funds rate at the Federal Open Market Committee meeting in December and two more early next year.
Stock prices are falling. Interest rates are rising (lowering the value of bond mutual funds). Where is the best place to hide out now in your company 401(k)?
Profit taking or preservation of principal strategic selling is probably the most important company 401(k) retirement plan account investment management decision to make before year-end 2018.
I don’t think it would be a bad idea to reduce your U.S. stock market exposure to no more than 50% of your total company 401(k) retirement plan value.
By early 2019, the money market account in your company 401(k) retirement plan will very likely provide you a guaranteed rate of return of about 3.00% Most of the large investment management firms don’t have that same investment return expectation for U.S. stocks in 2019.
Within a company 401(k) plan, you most likely have two options for cash. Last year, the Securities and Exchange Commissions implemented new rules making stable value funds and government-focused money-market funds as the most common money market equivalent choices.
Government-oriented money-market funds aren’t FDIC-insured like money-market accounts, but are still among the safest options on a company 401(k) retirement plan menu.
The other cash option in 401(k) plans comes in the form of stable value funds. Stable value funds invest in very short-term bonds. These funds are backed by an insurance wrapper that helps maintain net asset value.
These money market mutual fund options preserve the money you invest there now. And provide a competitive rate of return versus both stock and bond mutual funds now.
Don’t continue to hope that the current stock market correction is over. The Federal Reserve has guaranteed that interest rates will continue to rise. A “buy-and-hope” company 401(k) retirement plan investment management strategy is not a good way to start 2019.
Ric Lager
Lager & Company, Inc.
