Most Minnesota company retirement plan participants are a little bit familiar with the investment management concept of asset allocation. Their familiarity comes not from study or experience. Company retirement plan participants have heard about asset allocation because they are company retirement plan participants.
The asset allocation concept is the single biggest investment management theme promoted by both company retirement plan sponsors and company retirement plan providers.
All individual company retirement plan participants are given constant instruction as to the wisdom of investing small parts of their individual company retirement plan accounts in several of the different asset class mutual funds in the company retirement plan menu.
Asset allocation relies on the old adage that you heard from your parents…maybe even your grandparents. That wisdom was, “don’t put all your eggs in one basket.”
I will bet that the first time you heard that advice; it had not one thing to do with the investment management of your company retirement plan account. Over the years, the mutual fund industry has very cleverly equated this adage to their asset allocation theme.
I still meet with individual company retirement plan participants who think that an asset allocation investment management approach will solve their next stock market correction problem.
Asset allocation does not, and will not, preserve the principal in your individual company retirement plan account during a stock market correction.
Asset allocation works great when the overall stock market is rising. But it is much more important today to be aware of the risk level you are taking in regard to both the current economic and stock market cycles.
The best investment management decision today in your company 401(k) retirement plan account is to manage the risk in what you own. Are you taking the level of stock market risk that you are comfortable with in your company retirement plan account?
If you get your stock market risk wrong, it does not matter what your asset allocation plan is. Or what it was.
Ric Lager
Lager & Company, Inc.
