Up to this point in 2021, the stock markets have put most company 401(k) investors in a winning position. The Dow, S&P 500, and NASDAQ all hit record-highs, and then kept climbing. It was only about two months ago that the Dow hit 35,000 for the first time.
But when stock prices rise this high, there comes a point where 401(k) investors start wondering where things can go from here. Maybe stock prices aren’t a little too high given the economic uncertainties we’re facing.
That’s why, over the last few weeks, the markets have wobbled back and forth as investors start asking the same question over and over: “When?” As in, when will this incredible run in the stock market end? When will the next correction be? When should we make a move?
Let’s look at the U.S. stock markets action from yesterday, Monday, September 20th. At one point, the Dow dropped over 900 points, largely on news about a single company called Evergrande.
Evergrande is a major Chinese property developer with literally $300 billion in debt. For years, the company has borrowed aggressively to build (and sell) more and more homes and apartments. It’s all part of a much larger bubble in Chinese property that now threatens to burst.
Evergrande has proven unable to pay their debts, and now concerns are mounting that the government will allow the company to fail. That could mean huge losses for all Evergrande’s shareholders, bondholders, and business partners…who are based all around the world.
As you know, the global economy is a huge, interconnected web. Pull on one thread, and others might come undone, too. That is contagion, and with the global economy still coming to grips with COVID, now would be the worst possible time to experience it.
So, what is the right move in your 401(k) now?
In short, don’t make an emotional stock market risk management decision. I am advising my individual company 401(k) investment advice clients to continue to rely on technical analysis. We don’t need to ever guess at moves, and we can take emotion out of investing altogether, because we use data and rules to determine which moves, we make.
We know from history that there are two times when investors must be disciplined: When the markets are up, and when the markets are down. The best way to deal with uncertainty is to not overreact to it and move blindly.
Instead, we’ll remain disciplined and obey the rules that govern our 401(k) investment management strategy – the same rules that tell us when it’s time to go on offense, and when it’s time to play defense.
If our technical signals indicate it’s time to make a move, then we’ll do so. As of this morning, it’s the right time to consider the necessary steps to preserve company 401(k) retirement plan account principal.
Ric Lager
Lager & Company, Inc.
