I wrote this article on my Golden Valley Patch Blog on August 15, 2011.
The Gophers football camp is now in its second week. The Minnesota Vikings played their first exhibition game this weekend. My son’s high school football team begins practice this week. Football season in Minnesota has got me thinking about how a football game is very much like successful stock market investing.
When your favorite football team has the football, it tries to run plays and score points. When that same team does not have the ball, their main objective is to prevent the other team from scoring points.
If your team’s offensive players also tried to play defense, the game would become unwatchable very quickly. Can you imagine Brett Favre making a tackle last year for the Vikings? The opposing team would score at will.
The same goes for defensive players trying to run offensive plays. A shutout of your favorite Minnesota football team would be highly likely.
The stock market investing game is played much the same way. When the stock market is clearly rising, a company retirement plan investor has possession of the stock market “football” and can think about running offensive plays in order to grow the principal value in their company retirement plan account. Just about any stock mutual fund option in the company retirement plan menu goes up in value in a rising stock market.
When the stock market “football” changes hands, most 401(k) investors don’t know which team they should have on the stock market field. Most company retirement plan participants continue to play stock market “offense” when in reality their “defense” should be on the field. Predictably, the long-term investment results are not very good.
Since early August, the “defense” has controlled the stock market. There clearly have been more large sellers of stocks than large buyers of stocks. In this “defensive” stock market environment, it is next to impossible to try to grow your company retirement plan account principal.
The stock market is trying to take money away from you now. In that kind of tug-of-war, the stock market will always win. Your company retirement plan is clearly at risk.
If the stock market is not supporting higher prices, you need to be running plays to preserve the principal value in your 401(k) account. These plays include building up your money market balance and reducing your stock market exposure in your company retirement plan account.
The stock market will eventually punt the “football” back to you. At that time, you can maximize your stock market exposure and run the “offensive” plays that will safely grow your company retirement plan account value.
Until then, play “defense” in your 401(k) plan.
Ric Lager
Lager & Company, Inc.
