I have had this same conversation with many of my individual company 401(k) investment advice clients over the last few weeks. I truly believe that any working investor would most likely benefit from asking themselves the same question right now.
Like many questions in life, the question is important. Buy your honest answer to the question is even more important.
The question I ask my clients is, “How much money in your company 401(k) retirement plan account can I lose before you fire me?”
If my client hesitates at all with their answer, I help them by throwing out percentages… like 10, 20, or 30%. Most individual investors never think about stock or bond market risk. But they do understand dollars and percentages.
In person, I can see on their faces the mental arithmetic taking place in their mind. On the phone, there always is a pause before a completed answer is spoken.
I establish each of my client’s stock and bond market risk tolerance at all times. And I never keep 100% of their company 401(k) invested in falling stock market or rising interest rate environments.
The year-end investment returns for 2019 will be historic. Record stock market highs and interest rates lows mean that individual company 401(k) retirement plan balances hover near all-time highs.
Your December year-end company 401(k) account statement is your money. You have worked hard for it and need as much as possible for your retirement. But you have to have a plan to keep it.
Most individual company 401(k) retirement plan participants try to manage their accounts on their own. Let me be the financial professional that asks you this tough question now.
The most important numbers on your year-end 2019 company 401(k) retirement plan account statement are not the amount of investment gains, individual contributions, and company-matching contributions made.
The most important numbers regarding your next company 401(k) retirement plan investment management decisions are determined by your answer to this question. How much of those investment gains and contributions to you want to keep?
Dollars or percentages make no difference. Get an amount of money fixed in your head. Make sure you are completely comfortable with the possibility of that much less money in your company 401(k) account.
Let me be very clear. I am not asking you to “time the market” and sell everything you currently own in your company 401(k) account now. No one can guess the direction of the stock market and interest rates consistently over the long term.
Super computers using algorithms managed by really smart people can’t even do that. If they could, they would already have all the money in the world.
Many parts of long-term investment management success have to do with common sense. Ask yourself this question. Pay attention. Don’t participate in the next great stock market decline or rise in interest rates.
Keep the company 401(k) retirement plan account balance you have earned. But you need to have a principal preservation plan in place for that to become a reality.
Ric Lager
Lager & Company, Inc.
