Dollar-cost averaging is widely promoted as one of the main pillars of company 401(k) retirement plan account investment management strategies.
This strategy fits perfectly into how most individual investors fund 401(k) retirement plan accounts. Each month, money is added to their 401(k) account through personal contributions and company-matching contributions.
The investment management strategy is to add money to your retirement savings on a regular basis. In theory, this strategy will lower the risk because you reduce the impact of company 401(k) retirement plan account purchases at stock and bond market highs or lows.
Like all investment management theories, the theory of dollar-cost averaging is supposed to work in rising stock and falling bond markets. Then, suddenly, it does not work. And when it does not work, you lose the last several years of stock and bond market gains along with your personal and company-matching contributions.
The stock markets are near all-time highs. Interest rates are near all-time lows. Seriously, that do you think the next big move in stock prices or interest rates will be?
If you are convinced that higher stock prices and lower interest rates from these currently levels are highly likely, you can stop reading now. Go back to ESPN or buy your lottery ticket for today.
Any important investment management missteps going forward in your company 401(k) retirement plan account from these stock and bond market levels could have huge consequences to your retirement savings.
Stock and bond market losses are inevitable. No one can time stock and bond market highs on a consistent basis. Market timing is not the issue now.
The ability to preserve the last ten-plus years of your stock and bond market investment gains in your company 401(k) account should be your primary investment management concern now. The same goes for the preservation of the last several years of your personal and company-matching 401(k) contributions.
This fact is especially true if you are a handful of years from your desired retirement date. You will not be able to recover stock and bond market losses that go into the double digits from current levels.
If you want to preserve you near all-time company 401(k) retirement plan values, then you have to give serious consideration to taking the steps now to lower your stock and bond market risk levels.
Your 100% participation in rising stock markets and falling interest rates over the last few years has been rewarding. Participation in the next great stock market fall and interest rates rise is completely optional.
Ric Lager
Lager & Company, Inc.
