Have you ever noticed that your company 401(k) retirement plan does not provide guidance on how to manage it? That fact leads individual 401(k) participants guessing at “what to buy?”
All the mutual funds on your default company 401(k) menu have done well over the last couple of years. The reality is that some default mutual funds on your company 401(k) menu have done much better than others.
You never want to own “the others” in your company 401(k) account.
Recent stock market volatility can be scary. But it also can be a suitable time to 401(k) mutual funds that have underperformed the popular stock market averages.
There are simple one-time moves to make that can lower your stock market risk going forward.
Take down the risk in your 401(k) mutual fund portfolio. Sell any mutual funds you own now that have “lagged” the popular stock market averages. A sound investment performance benchmark to use is the Standard & Poor’s 500 Index.
Let us say you currently own six mutual funds in your company 401(k) retirement plan account. My 38 years of investment advisory experience leads me to believe you own at least two mutual funds to sell now.
You never should have bought those mutual funds in the first place. Sure, they have appreciated in value over the last few years. But not as much as other mutual funds on your company 401(k) menu.
You took all the risks associated with stock market investing. But you do not have the annual investment returns to show for it. Bad combination for the long-term growth of your retirement nest egg.
You might have confidence about more stock market upside. If so, reinvest the proceeds into better mutual funds on your 401(k) menu.
You might be concerned about the near-term direction of the economy and stock markets. Then have patience to sit in the safety of the money market account in your 401(k). You will have money to spend in the next great stock market sale.
Either way, you have positioned your 401(k) better for the future.
You have sold the worst mutual funds you own now. Reinvest in the best mutual funds available on your default company 401(k) menu.
Or you wait in the money market. You preserve the last several years of stock market gains. And your personal and company-matching 401(k) contributions.
One or both 401(k) investment management strategies will work now. The preservation and future growth of your retirement nest egg is paramount.
If you do not have the time or expertise to make these 401(k) accounts moves yourself, do not worry. An independent, third-party investment advisor can help. They provide the database tools to rank your default menu of 401(k) mutual funds.
Ric Lager
Lager & Company, Inc.
