In the first quarter of 2020, the S&P 500 lost 30% of its value. Since then, that broad U.S. stock market index has slowly climbed back to recoup much of that loss. As of mid-June, the index is down right around 5% year-to-date.
The stock markets seem to be heading in the right direction again. But what do you do if your company 401(k) account balance has not moved higher in the last few weeks?
Here is the honest truth. You most likely own the wrong mutual funds on your default company 401(k) retirement plan menu.
For most company 401(k) participants, picking the specific mutual funds to own is complete guesswork. The reason is that you don’t have access to independent, third-party investment research that ranks your company 401(k) mutual fund options.
When the stock market fell dramatically earlier this year, most individual company 401(k) investors did nothing. But when the stock markets recovered just as dramatically, that same “do nothing” investment strategy fails.
Over the last few weeks, the overall stock market as measured by the S&P 500 is up dramatically. If you own an S&P 500 mutual fund, you should be fine. If you own a stock mutual fund that owns many of the S&P 500 stocks you should be fine.
But, if you own a bond mutual fund, you have lagged the S&P 500 index. The same goes with an international equities mutual fund. Both of those asset class mutual funds have lagged the S&P 500 investment returns recently.
A large part of the stock market “recovery” has already taken place. If your individual company 401(k) account balance did not rise at the same or faster rate than the S&P 500 index over the last few weeks, you clearly own the wrong mutual funds.
You are taking all of the risk associated with stock market investing, and not receiving the appropriate investment returns.
If you own any company 401(k) retirement plan mutual fund now that is down more than 5% for the year-to-date period, you need to sell that mutual fund. Just buy the S&P 500 index mutual fund option on your company 401(k) mutual fund menu.
If the stock markets move higher from current levels, you will participate in those investment gains. If the stock markets fall from current levels, your new mutual fund will fall at a slower rate.
The S&P 500 is the part of the U.S. stock markets that are working the best for now. At a minimum, you need to own that index and participant in those investment returns.
Ric Lager
Lager & Company, Inc.
