Do you want to preserve your 401(k) value during periods of extreme stock and bond market volatility? The key is not to “sell everything” and curl up in the fetal position under your desk. At home or at work.
Instead, take a current inventory of the 401(k) mutual funds you own now. Begin with an analysis of the stock and bond market exposure you have now.
How much of your 401(k) mutual funds invest in stocks?
What kind of stocks do these mutual funds own?
Do these mutual funds own Value or Growth companies?
Do these mutual funds own Large, Mid, or Small Cap companies?
If you own a target date mutual fund, how much bond exposure do you have?
When you know what you own in your 401(k), something magic happens. That magic help you make the emotional and mental decision on how much principal risk you can take in your 401(k).
Awareness is the key to 401(k) risk management.
Being aware of your stock and bond market exposure in your 401(k) is one of the most powerful tools you have. This awareness is the key to an effective 401(k) investment management strategy.
I do not talk to many individual 401(k) participants who love to watch their 401(k) accounts. There are too many other fun things to do in life. And when it comes to a 401(k) risk management strategy, there is a good chance they do not have one. And they hate the very thought of the idea.
So why do not you have a 401(k) risk management strategy in place now?
1- It do not need to.
True. Since March 2009, the stock markets have gone straight up. Over the same time, interest rates have gone straight down. Both markets traded at historic levels as recently as the end of 2021.
I do not have to remind you that political, economic, and societal events have changed. The “old day” of buy-and-hold in your 401(k) are over. The last several years of your 401(k) investment gains are now at risk. And your personal and company-matching contributions.
2- I already know the mutual funds I own in my 401(k).
No, you do not. Sorry. Your 401(k) is overloaded in Apple, Alphabet (Google), Facebook, Twitter, Netflix, and Tesla. If you knew how much, you would be much more nervous than I can make you in this article.
Every 401(k) participant I provide a complete analysis of their 401(k) mutual funds is shocked. The most common response is, “I had no idea I owned that much of my 401(k) in so few stocks. “
3- I am do not want to change.
This is the biggest mental and emotional hurdle. Some 401(k) investors do not want to know the true level of their stock and bond market risk. They do not want to be surprised. Or scared. Then we must decide: Do I want to change?
If you do not care about the preservation of your 401(k)-account principal now, then I give up. I write surprisingly good blog posts sometimes. But I know they are not that good.
The whole point is to become more aware of what you own now in your 401(k) account.
You have worked too hard in your career to give up your recent stock and bond market gains. Those personal and company-matching 401(k) contributions are worth a lot to you. Take at least a few minutes now to preserve them.
What do you have to lose?
Ric Lager
Lager & Company, Inc.
