I have provided investment advice to individual 401(k) participants for over 25 years. In my experience, 401(k) participants fall in to two very distinct groups.
The first group live in their past 401(k) investment management results. Over their entire working career, they have never needed to “manage” their 401(k) account.
At times, they lose significant amounts of 401(k) principal. And each time the stock market recovers. “Buy-and-hope” has always worked out for them.
At the same time they have seen the largest decline in U.S. interest rates in history. Any bond mutual fund they owned went up in value. Including the target date mutual funds that dominate most default 401(k) menus.
This group invests in stock mutual funds in their 401(k). They have held on to the same 401(k) mutual funds for years.
Why? “Because the stock market always goes up.”
Their desired retirement date is set. They have more of their working career in their past. Few more working years in their future.
The reality is that they have not learned any 401(k) investment management lessons. In the distant past or recently. They continue with their “set-it-and-forget-it” mindset.
They hope to have all the money they will ever need in their 401(k) account when they decide to retire. They don’t know where or how that will happen. They know their 401(k) always “went up” in the past.
The second group of 401(k) participants are the only ones who I can help. The live in the present. Have learned hard 401(k) investment management lessons from the past. And always think about their responsibility to fund their future retirement.
These 401(k) participants know their annual 401(k) mutual fund fees and expenses.
These 401(k) participants know how their default 401(k) mutual funds rank. By annual expenses. And annual investment performance.
These 401(k) participants have a principal preservation strategy in place. To protect their retirement savings in the early stages of the next stock market decline. Or rise in interest rates.
They focus on long-term 401(k) goals. To contribute as much as possible during their working career. To only own the best mutual funds available on their default company 401(k) mutual fund menu.
So, which 401(k) participant group are you in? Are you living in your 401(k) past or thinking about your 401(k) future?
Make sure your 401(k) mutual fund choices reflect your tolerance for stock and bond market risk. Or your 401(k) past will become your 401(k) future.
Ric Lager
Lager & Company, Inc.
I have spent the last several years trying to figure out the best way to share my 401(k) advice content. I have tried Twitter, Facebook, company web site, and LinkedIn Groups. I now realize nothing beats a well-crafted newsletter delivered to your inbox once a week.
Sign-up here.
