This Thanksgiving will surely be remembered as a very dangerous and frustrating holiday. No matter how you choose to celebrate, you most likely will have at least a few minutes alone to devote to your finances. Here is an idea to profit from the isolation.
Review your current company 401(k) retirement plan holdings. Open your September 30, 2020 quarterly paper statement. Better yet, log in to your company 401(k) retirement plan account website.
Find the column on your quarterly statement or online that lists past investment returns. You are very likely to notice a huge gap in past investment performance of at least one of your current company 401(k) retirement plan mutual fund holdings.
You are taking all the risk of investing in the stock markets. But you are not getting your fair share of investment returns. Here is how to close that gap.
Right now, this is the most important investment management decision to make in your company 401(k) retirement plan account.
The U.S. stock market have recently closed near all-time highs. Interest rates are near all-time lows. If you own a mutual fund in your 401(k) that has underperformed the major stock and bond market benchmarks, sell that mutual fund and place the proceeds in the safety of the money market.
That’s right, shoot the turkey mutual fund you currently own. Call the company 401(k) retirement plan provider’s 800 number, or sell the mutual fund online.
Most individual company 401(k) retirement plan participants own the same stocks and bonds in multiple mutual funds. This duplication of asset class and individual mutual fund holdings comes at the expense of poor investment performance.
There is no need to own four, six, or more company 401(k) retirement plan mutual funds. Owning more mutual funds does not reduce your stock and bond market investment risk. All you do is to lower your investment returns.
Selling the worst performing 401(k) mutual fund now will give you a money market balance to reinvest when the bottom of the current stock market decline arrives.
Do you enjoy the sale prices at your favorite store? Great. What do you have to have in order to take advantage of those sale prices?
You have to have the money to spend when the things you want to buy go on sale.
At some point, there will be a huge stock market sale event. Building a money market balance now will allow you to have the money to spend on the better mutual fund options in your company 401(k) account when the stock market risk level is in your favor.
Ric Lager
Lager & Company, Inc.
