How many “remain calm” financial services articles have you read this week?
It happens every time the Dow Jones, S&P 500 and Nasdaq indexes all drop at the same time. Stock market volatility creates another marketing opportunity for the “do nothing” message.
The main message is that panic and making sudden changes to your 401(k) will not help you over your working career. The only way you lose money is to “sell” when the stock markets are falling, right?
You do not need to watch your 401(k) value melt away like an ice cream cone on the 4th of July picnic.
Marketing messages aside. How are you feeling right now about the recent losses in your 401(k) account?
For more than a decade, your 401(k) balance went up every year. Even better, your personal and company-matching contributions added up. Your year-end 2021 401(k0 account balance was an all-time high.
Those days are gone.
The economic, interest rate, and geopolitical climates do not allow for the growth of your 401(k) now. At least over the near term. The most important investment decision now is to preserve your 401(k) principal.
How much 401(k) loss—in dollars or percentages—can your emotions handle?
Did you ever take the time to fill out one of those risk tolerance questionnaires on your 401(k) provider web site? Your financial advisor made you sit through that same exercise.
In my experiences, those risk tolerance questions do not mean much. An individual investor never knows how they will react until they see the losses add up in their 401(k) account.
Let us say your current 401(k) balance is around $300,000. You could have lost 10% of that value in the last few weeks. Even more.
Have you ever figured out how many years it takes for you to add $30,000 to your 401(k) account?
100% participation in the current stock market decline is completely voluntary. Do not let any financial services headlines convince you otherwise.
There are plenty of 401(k) principal preservation options. Not one of them has anything to do with timing the stock market. Or interest rates.
What other areas of your life is it ever in your best interest to “do nothing?”
If the roof on your house leaks, do you fix it?
When you are paying a monthly subscription you do not use, do you cancel it?
If you have a medical care issue, do you take advantage of your health benefits?
The preservation of your 401(k) principal value is no different. There are logical, rational, and disciplined steps you can take now. You do not have to live through more days and weeks of riding the stock and bond market roller coaster.
Other people and things in your life that deserve your time, attention, and emotions now. Your 401(k) does not have to be on that list.
Ric Lager
Lager & Company, Inc.
