A few weeks ago, I hit a deer with my Jeep. On the way to my cabin in Canada.
The last few miles of the trip is remote. Dotted with many of God’s creatures. Each one enjoying the summer weather. Often in the road.
I always pay close attention. Even when I have the satellite radio cranked up.
But I had no chance on this one. A deer sprang out of the high grass in the ditch. There was no time to slam on the brakes. A collision was unavoidable.
I’m fine. My Jeep is repaired. And my insurance company did not drop my coverage.
The reason I’m sharing this story is because the stock markets have also hit a major obstacle recently. An obstacle that investors knew was possible. Even probable.
The only thing was the timing. Which seems to be right now.
Yesterday, the Dow Jones fell by over 600 points. And the NASDAQ entered into correction territory. This came on the heels of a similar slide on Thursday.
The reason. A spike in unemployment. Coupled with fear that the Federal Reserve has waited too long to cut interest rates.
The Fed has been trying to accomplish a soft landing. Historically unique and difficult. Where inflation falls, and the economy slows but not enough to cause a recession.
Inflation hasn’t come down as fast as anyone would like, prices have cooled. The latest report showed inflation was at 3% in June compared to the same point last year.
The nation’s GDP grew by 1.4% in the first quarter of the year. And is projected to have grown by 2.8% in the second.
The economy has continued to add hundreds of thousands of jobs each month. Between February 2022 and April 2024, the unemployment rate stayed below 4%.
But… (There’s always a but, isn’t there?)
When the latest jobs report came out yesterday, the economy only added 114,000 jobs in July. That’s much lower than what economists had expected.
Furthermore, the unemployment rate ticked up to 4.3%, the highest it’s been since October 2021.
The stock markets moved higher based on expectation. Investors already expected the Fed would cut rates.
Those expectations were already priced in.
Now, investors are wondering: “Did the Fed wait too long to cut rates? Did we miss our chance at a soft landing?”
Which brings me back to the story I started with when I hit the deer.
No panic on my part. I knew what numbers to call. What information to collect. What appointments to make. How to adjust my schedule.
As a 401(k) investor, that’s what you should do too. Have a plan.
A 401(k) principal preservation plan. In place before the next meaningful stock market decline.
It’s not too late. Because the current stock market decline may be in the early stages.
The best place to start is with a “second opinion” on your current 401(k) mutual funds.
- How the funds rank.
- What stocks and stock market sectors are in those funds.
- Annual fund expenses.
- Recent investment performance.
August and September are historically two of the most volatile stock market months. Now is a good time to act.
Know for sure the level of stock market risk you are taking now.
And put in place a place to preserve the last several years of your 401(k) stock market gains. Along with your personal and company-matching contributions.
P.S. There is no need to continue to guess with your 401(k) mutual funds. All you need is a second opinion. You deserve it.
