I wrote this article on February 29th, 2012 for my Golden Valley Patch Blog.
“A rising tide lifts all boats.”
This phrase is generally credited to John F. Kennedy, who used it in an economic policy speech in 1963. I think it is the perfect phrase to think about today as the Dow Jones Industrials closed above 13,000 on Tuesday, February 28th.
Your Minnesota company 401(k) retirement plan account is probably worth more today than it has been in several years. Even in a “buy-and-hope” investment mode, times are great to be 100% invested in the stock market.
As in all things regarding investments, a little bit of reality needs to be considered along with any good short-term news.
May of 2008 was the last time that the Dow Jones Industrials traded close to 13,000. The reality is that was just four months prior to the beginning of the U.S. financial crisis that our economy is still trying to recover from.
May of 2008 was the last stock market top. The bottom was several years later after double-digit losses in both the stock market averages and individual company retirement plan accounts.
Right now, you surely own a handful of mutual funds in your company retirement plan account that are priced at multi-year highs. These same mutual funds are not outstanding mutual funds on their own investment performance record. The only reason that these mutual funds have risen in price is that they have been pulled along with a rising stock market.
As I have discussed in the forum before, the vast majority of company retirement plan mutual funds are average investment performers at best. There are a few great individual mutual fund options in some company retirement plan menus, but that is the exception.
The majority of individual company retirement plan participants never pay close attention to stock market cycles. These stock market investors have no game plan for the next great move in the stock market—a period of “correction” from cyclical high levels.
For that reason, most stock market investors ride the stock market up, and ride the stock market back down again several times over their investment lifetime.
The key to long-term investment management success in a company retirement plan account is to not let those gains slip away at a later date. Don’t let that same investment fate happen to you in the months or years ahead that you have lived through before.
You don’t have to go out tomorrow and sell everything you own now in your company retirement plan account. That would be a much too radical investment management strategy for most company retirement plan participants to take.
Take inventory now of exactly how much risk you want to take in your individual company 401(k) retirement plan account. If you don’t want to give back your company retirement plan money again, a multi-year high in the stock market averages is a great time to make the move to preserve some principal in your retirement plan account.
For many company retirement plan participants, today’s stock market highs are a second chance to take some of the stock market risk out of their company retirement plan account.
Ric Lager
Lager & Company, Inc.
