Here we are again, right back in the middle of another big stock sell off. It’s has not been a long time since the last great stock market decline was in December of last year.
You are again taking the risk of losing giant amounts of money in your company 401(k) retirement plan account. But all is not lost. There is a little know alternative that will allow you to better navigate the current stock market selloff in order to preserve the largest piece of your retirement savings.
Since the early days of company 401(k) plans, mutual funds have dominated company 401(k) retirement plan menus. The tools to protect company 401(k) retirement plan principal have been limited.
Times have changed. Today’s modern technology provides the opportunity for most individual company 401(k) retirement plan participants to establish a proactive investment management strategy to deal with stock market declines.
All company 401(k) retirement plans offer a core group of mutual funds. More and more plans now offer a key account feature that can be used as a company 401(k) retirement plan insurance policy.
That key account offering is called a self-directed brokerage window. The most common name of the account is the self-directed brokerage account or SDBA.
Schwab’s self-directed brokerage account option is referred to as the Schwab Personal Choice Retirement Account, or PCRA. Fidelity calls their self-directed brokerage accounts plans Fidelity BrokerageLink accounts.
The SDBA company retirement plan account option is exactly the kind of company 401(k) retirement plan offering that never gets noticed. You read all your quarterly email updates from the human resources department, right?
You will never see or hear your current company 401(k) retirement plan provider promote the benefits of the self-directed brokerage account. Here is the reason why.
Company 401(k) retirement plan providers want individual company 401(k) retirement plan participants to sit back and take what the stock market gives them. Mutual fund marketing departments have promoted the “buy-and-hold” investment management strategy for generations.
Mutual funds make the most money when you stick with the mutual funds you currently own. Company 401(k) retirement plan providers don’t want you to take full advantage of the investment management tools allow for the preservation of your company 401(k) retirement plan principal.
The self-directed brokerage account allows you to set up a brokerage account within your existing company 401(k) retirement plan account. This account allows you to own ETF’s or exchanged traded funds.
A key element of exchanged traded funds is the ability to set hard stop losses at predetermined market prices. You can’t set a stop loss on a mutual fund inside or outside of a company 401(k) retirement plan account.
Pay attention to the required disclosures about the fees and expenses associated with self-directed brokerage accounts within a company 401(k) retirement plan. There may be annual account maintenance fees and a per-trade fee.
I have advised individual investor clients using SDBA accounts in company 401(k) retirement plans for over almost 20 years. I can’t remember an example of annual fees and trading costs standing in the way of making timely investment management decisions to preserve the last several years of stock market gains, individual contributions, and company-matching contributions.
Find out if the SDBA is included in your current company 401(k) retirement plan account offering. You don’t have to sit back and take the demoralizing loss of your company 401(k) retirement plan principal sever few months.
Instead, you can limit the amount of stock market losses you are willing to accept going forward. You will be much happier when you do.
Ric Lager
Lager & Company, Inc.
