Throughout the history of the U.S. stock markets, corrections happen regularly and are impossible to predict. In most cases, these stock market losses are the result of investor’s emotions rather than economic fact.
Last December, the most recent stock market correction was completely driven by fears of a dramatic change in the monetary policy of the Federal Reserve. The stock market fear was that the Fed would tighten monetary policy too much and cause a potential economic recession.
Two months later, there is still no evidence of recession. Even more important, there are no definitive signs of the beginning of a recession. It turns out that the stock market declined because the Fed might hike interest rates too far.
Individual investors many times see what they want to see, hear what they want to hear. Every investor has a deep-seated internal investment management bias.
This is especially dangerous for company 401(k) retirement plan investors. They ardently desire their retirement savings to continue to grow each calendar year. This bias interferes with their stock market risk management abilities.
Historically, stocks go up, then they go down quickly. That is a fact of U.S. stock market life. This stock market fact will not change, so you have to change your investment management behavior instead.
A better company 401(k) retirement plan investment management approach is to begin to see the U.S. stock markets as they are. You don’t need to try to predict the future. You only need to react to the changes in the current stock market risk levels.
The necessary investment management decisions required to manage your company 401(k) retirement plan account require you to see the current economic, political, and stock market conditions as they are.
Managing your stock market risk levels is hard on its own. If you try to make investment management decisions by predicting the future, it is just a matter of time until you will be disappointed.
More importantly, you will most likely also lose a large amount of your company 401(k) retirement plan principal in the process.
Now is a good time to revisit your current company 401(k) retirement plan risk management strategy. If you don’t have one, your year-end 2018 statement should remind you to get one.
Two months later, the December 2018 stock market decline seems to be over. U.S. stock markets have recovered nicely. Make sure you have a well thought out company 401(k) retirement plan risk management strategy for the next stock market correction.
Ric Lager
Lager & Company, Inc.
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