Over the years, I have had a number of my individual company 401(k) retirement plan advice clients tell me that they want to “swing for the fence” with their company 401(k) retirement plan mutual fund investments.
Alert: After the last nine-plus years, and the longest stock market advance in U.S. history, you are swinging for the fence right now with your 401(k). Just so you know.
These same “swing for the fence” clients are the first ones to send me e-mails and make phone calls when the stock market has a few scary days in a row.
The phone calls and e-mails started to arrive last Thursday.
Answers on a risk questionnaire, and real-life losing money in your 401(k), are completely different things. That is exactly why I always ask new individual company 401(k) advice clients the following two very important questions early in our investment advice relationship.
“How much of your money can I lose and you won’t be angry with me?”
I have found that this first question gets an individual investor’s attention. But the truth can only be known about that investor’s real stock market risk tolerance after I quickly ask the follow-up question below.
“Are you going to be upset with me because you are down a few percent from the all-time stock market highs, and I did something to protect you, or are you going to be upset with me because you are down over 40% and I did nothing to protect you?”
Most individual company 401(k) retirement plan participant investors want the protection from a great stock market decline. They want to know that the stock market damage will be limited.
The vast majority of my company 401(k) advice clients agree in advance that in the event of a manageable loss in their company 401(k) retirement plan accounts we will still remain friends.
I can lose my individual company 401(k) advice clients about 10%. I very clearly can’t lose them 40-50%. At that level, we will not be friends. And they will not remain clients.
There is no better feeling as an investment advisor than to give my clients peace of mind. They have the confidence that the next great stock market decline will not lose them any more money in their company 401(k) retirement plan money than they told me that they were comfortable losing.
The stock markets will always do what they will do. The only thing that I can control is how much my clients tell me they are comfortable losing.
First, I have to ask the questions. Next, I have to put a plan in place that limits the company 401(k) retirement plan losses in the event of the next great stock market decline.
Sometimes it feels funny to guarantee my clients losses in their company 401(k) retirement plan account. The last few days, that guarantee is no laughing matter.
Ric Lager
Lager & Company, Inc.
