If you are looking for me to make a solid prediction of a meaningful stock market bottom, I am going to disappoint you. The financial services media is full of investment advisors more qualified than me to provide those forecasts.
Right now, there are two important investment management considerations in your company 401(k) retirement plan account.
Both considerations require a very important balance. To achieve that balance, you have to make important decisions on how much stock market risk you want to take going forward.
Here is the first consideration, or decision to make. In dollars or percentages, how much more are you willing to lose in your company 401(k) retirement plan account balance?
Forget your March 31st, 2020 statement balance. Also forget your early March 2020 online balance if you peeked online.
Set a dollar or percentage amount of how much more company 401(k) losses you are willing to take going forward. Place that number in or your mind. Or better yet, write it down and put it in a place your visit every day.
You now have your mental and emotional stop losses. If a future stock market decline drops your company 401(k) account value to those stop loss levels, you don’t think about it. You don’t hope the losses are temporary. You sell the dollar amount of your company 401(k) account where you are most comfortable.
You don’t need to sell all of your current company 401(k) mutual funds. You only need to sell the worst mutual funds you currently own.
The stop losses you set now completely solve the first company 401(k) retirement plan account investment management risk. That is, the risk of losing more principal.
The second investment management consideration is harder to manage. That is the risk of losing a stock market bounce opportunity in the near term. If you had a stop loss in place earlier this month, you most likely would have missed out on the recent stock market bounce.
Here is the key point. During historic stock market volatility, you have two choices for the investment management priority in your company 401(k) retirement plan account.
You can either establish stop loss levels to preserve your current company 401(k) retirement plan balance. Or you can continue to “buy-and-hope” and think that the stock markets will eventually recover.
You can’t have both options.
Ric Lager
Lager & Company, Inc.
