One good thing about having two recent college graduates in the family is that you have conversations about the great books they have read and wrote papers on for their classroom assignments.
In the last couple of weeks, I read the book by Daniel Kahneman titled Thinking, Fast and Slow. Mr. Kahneman is a behavioral psychologist and economist who wrote about the fact that most human decisions are driven by what he calls the “fast-thinking” part of the brain.
This part of the brain is responsible for the primitive and impulsive fight-or-flight instincts that are part of every-day decision making.
Working from home has allowed more individual investors to take the time to more thoroughly analyze their investment management strategy. I have concerns regarding the timing and logic of those new company 401(k) retirement plan account investment management decisions.
Based on the conversations I have had with clients over the last two months, I think many individual investors are mentally exhausted. Working from home with limited social activity has taken an emotional and mental toll.
Individuals are tired and worn out. Decisions on any level require much more effort. Complication investment management decisions are not at the top of the list. The mental effort to research alternatives and improve choices is just too hard.
Any company 401(k) retirement plan participant who does not take the time and energy to reconsider their stock market risk levels over the last two months is in serious jeopardy of “missing out.’ Good or bad stock market news will affect them either way going forward.
If the stock markets go up from current levels, individual investors will most likely own the wrong mutual funds in their company 401(k) retirement plan account. The best investment returns going forward are most likely going to come from the mutual fund options not currently owned.
Outstanding investment returns going forward will be neglected because the individual company 401(k) retirement plan participant is just too fatigued and prefers not to explore meaningful options.
If the stock markets go down from current levels, individual investors run the risk of more principal loss. The familiar mutual funds owned now may fall at a much faster rate than the overall stock market averages. The easy decision to “stay the same” is potentially more dangerous.
In times of crisis and the need for more complicated decisions, Kahneman writes about the fast-thinking part of the brain takes over with “good enough” decisions. For individual company 401(k) investors that means doing nothing.
These historic stock market times require rational and logical investment management decisions. The fate of retirement plan nest eggs is at stake.
Slow down, take a deep breath, and give serious thought to your company 401(k) retirement plan account investment management strategy. Allow yourself to make more logical and rational decisions.
Most likely, there are other, better mutual fund options for you to own on your company 401(k) retirement plan menu. Find out.
Ric Lager
Lager & Company, Inc.
